Consider a Cartel Consisting of Several Firms That Is Maximizing

question 21

Multiple Choice

Consider a cartel consisting of several firms that is maximizing total profit.If one firm cheats on the cartel agreement by cutting its price and increasing its output,the best response of the other firms is to

• A)cancel the cheating firm's membership in the cartel.
• B)continue to sell at the agreed-upon price.
• C)raise their price to recapture lost profit.
• D)cut their prices as well.
• E)cut output to keep total cartel output at its original level.

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Definitions:

Responsibility Accounting

A system of accounting that segments financial information by areas of responsibility, allowing managers to be held accountable for their areas' financial performance.

Managers

Managers are individuals in an organization responsible for directing and overseeing the work of a group of people towards the achievement of goals.

Residual Income

The income that exceeds the minimum rate of return, often used as a measure of the performance of investment centers within organizations.

Net Operating Income

Profit generated from a company's normal business operations, excluding deductions of interest and taxes.