Demonstrate Graphically and Explain Verbally Why There Is an Incentive

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The Answer is Firms have an incentive to get together to restrict output because this allows them to increase price and transform some consumer surplus to producer surplus. This is shown in the diagram as a movement from output level 0M to level 0L (with an associated increase in price from PM to PL). The amount of consumer surplus transferred to the producers is shown as the filled in rectangle. Consumers typically do not fight this type of restriction because the costs of organizing the effort to fight it often outweigh the benefits of doing so. <img src="https://d2lvgg3v3hfg70.cloudfront.net/TB7145/11ead704_62bf_a85e_9e2d_e75aa629b96c_TB7145_00.jpg" alt="Firms have an incentive to get together to restrict output because this allows them to increase price and transform some consumer surplus to producer surplus. This is shown in the diagram as a movement from output level 0M to level 0L (with an associated increase in price from PM to PL). The amount of consumer surplus transferred to the producers is shown as the filled in rectangle. Consumers typically do not fight this type of restriction because the costs of organizing the effort to fight it often outweigh the benefits of doing so.  " class="answers-bank-image d-block" rel="preload" >

Demonstrate Graphically and Explain Verbally Why There Is an Incentive

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