In a cartel,the incentive to cheat is significant because
A)each individual member has the incentive to restrict its own output to maximize cartel profit.
B)the marginal cost is equal to the cartel price at the profit-maximizing output level.
C)each firm has the incentive to lower its price to sell more than the allotted amount.
D)each firm has the incentive to cheat by raising its price to maximize profit.
E)price is less than marginal cost for each member of the cartel.

Question

Quizplus · Accepted Answer

In a cartel, each firm agrees to restrict its output to increase prices and maximize profits for all members. However, each firm also has the incentive to cheat by lowering its price and selling more than the agreed-upon amount, as it can increase its own profits at the expense of the other members. Therefore, the incentive to cheat is significant and can undermine the success of the cartel.

In a Cartel,the Incentive to Cheat Is Significant Because