The Two Tendencies of a Firm in a Cartel Are

question 75

Multiple Choice

The two tendencies of a firm in a cartel are the incentive to:

• A) cheat to maximize joint profits and the incentive to raise prices.
• B) cheat and avoid collusion and the incentive to raise price to maximize the firm's share of profits.
• C) increase output in order to minimize per-unit cost and the incentive to reduce price in order to maximize joint profit.
• D) cooperate to maximize joint profits and to cheat on the agreement in order to increase the firm's share of the profit.

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Definitions:

Strike Price

The predetermined price at which the buyer of a call option can purchase the underlying asset, or the buyer of a put option can sell the underlying asset.

Pre-Tax Net Profit

The amount of revenue left after deducting all operational, interest, and depreciation expenses, but before paying income taxes.

Black-Scholes Model

A mathematical model used for pricing options, considering factors such as the stock price, exercise price, and time until expiration.

Strike Price

The fixed price at which the holder of an option can purchase (in the case of a call option) or sell (in the case of a put option) the underlying security or commodity.