Two Firms Decide to Form a Cartel and Collude in a Way

question 3

Multiple Choice

Two firms decide to form a cartel and collude in a way that maximizes industry profits.Each firm has zero production costs and each firm is given a positive output quota by the cartel.Which of the following statements is not true?

• A)Each firm would want to produce more than its quota if it knew that the other would continue to produce at its quota.
• B)The price elasticity of demand will be 21 at the output level chosen.
• C)Output would be lower than if the firms behaved as Cournot firms.
• D)Output would be lower than if the firms behaved as competitors.
• E)All of the other statements are false.

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Definitions:

Principle of Utility

A foundational principle in ethics that suggests actions should be judged as morally right or wrong based on their consequences, specifically aiming to maximize happiness and minimize suffering.

Rightness

The quality of being morally correct, justifiable, or acceptable according to ethical principles.

Principle of Effort

The notion that the outcome of one's endeavors is directly related to the amount of effort put in.

Social "Goods"

Benefits or positive outcomes that contribute to the well-being of a society or community, including both tangible resources and intangible elements like justice and safety.