Collusion Makes Firms Better Off Because If They Act as a Single

question 101

Multiple Choice

Collusion makes firms better off because if they act as a single entity (a cartel) they can reduce output and increase their prices and profits.But some cartels have failed and others are unstable.Which of the following is a reason why cartels often break down?

• A)Most cartels do not have a dominant strategy.
• B)When a cartel is profitable, the amount of competition it faces increases.
• C)Members of a cartel may resent having to share their profits equally.
• D)Each member of a cartel has an incentive to "cheat" on the collusive agreement by producing more than its share when everyone else sticks with the collusive agreement.

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Definitions:

Civilized Behavior

Conduct considered socially appropriate and reflective of societal norms and values, often used historically to justify colonial and cultural dominance.

Rule of Law

The principle that all individuals, institutions, and entities are accountable to laws that are publicly promulgated, equally enforced, and independently adjudicated.

NAFTA

The North American Free Trade Agreement, a treaty between the United States, Canada, and Mexico that created a trilateral trade bloc in North America.

Labor

The body of persons engaged in physical or intellectual work for wages, or the work itself; also, one of the critical factors of production in economics.