If Five Firms of Similar Sizes Join to Form a Cartel

question 68

Multiple Choice

If five firms of similar sizes join to form a cartel, then it is most likely that

• A) they will charge a common, lower market price.
• B) they will collectively produce less than before.
• C) all five firms will earn the same profits as before.
• D) all five firms as a group will have falling profits, but increased output.

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Definitions:

Operation of Law

Changes in rights, duties, or obligations automatically enforced by the legal system without the need for action by the parties involved.

Condition Precedent

A condition in a contract that must be met before a party's promise becomes absolute.

Avoidable

Capable of being prevented or circumvented through careful action or strategic planning.

Collateral Agreement

An agreement that has its own consideration, but supports another agreement.