When Cartel Members Agree to Restrict Output to Increase the Price

question 68

True/False

When cartel members agree to restrict output to increase the price of their product,a single member of the cartel has an economic incentive to violate the agreement by increasing its output so as to increase profits.

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Definitions:

Variable Cost

Variable cost is a cost that varies directly with the level of production or sales volume, such as materials and labor costs.

Marginal Product

The extra output generated from increasing a particular input by one unit while all other inputs remain unchanged.

Marginal Costs

The increase in total cost that arises from producing one additional unit of output, a key factor in determining optimal production quantities.

Short-Run Average Total Costs

The total production costs divided by the quantity produced when at least one input is fixed, typically analyzed in the short-run period.