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:

Income Inequality

The unequal distribution of income and wealth among individuals or groups within a society.

Consumption Patterns

The tendencies or habits of consumers in acquiring and using goods and services over time.

Economies Of Scale

A situation where the cost per unit of output decreases as the scale of production increases.

Income Inequality

The unequal distribution of income among individuals or households in an economy, leading to various social and economic issues.