An Agreement Between the Dominant Firm and the Fringe Members

question 31

Multiple Choice

An agreement between the dominant firm and the fringe members to keep output low often breaks because:

• A)the fringe firms usually appropriate a larger share of the profits.
• B)the agreement is not self enforcing.
• C)the dominant firm usually appropriates a larger share of the profits.
• D)both have an incentive to charge a higher price for their output.

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Definitions:

Unused Capacity

The difference between a company's actual production and its maximum potential production if all resources were fully utilized.

Capacity

The maximum level of output that a company can sustain to produce in a given period under normal circumstances.

Machine-Hours

Machine-hours refer to the total time that machinery is in operation, often used as a basis for allocating manufacturing overhead costs.

Unused Capacity

The portion of a company's production capability or resources that is not currently being utilized to generate revenue or output.