There are four ice cream shops on a small tourist island.The following table shows the quantity of ice cream cones that each firm produces in a typical year and the price that each firm currently charges for each ice cream cone it sells.An economist might suspect ________ collusion occurring in this market where ________ is the price leader and all other firms set price to match the price leader.

Question

Quizplus · Accepted Answer

The economist might suspect tacit collusion occurring in this market where Cream Emporium is the price leader and all other firms set price to match the price leader. There is no evidence of explicit or illegal collusion occurring in the market, so options A, B, and C can be ruled out. The prices and quantities produced by each firm suggest that Cream Emporium is the dominant firm in the market and the other firms are adjusting their prices to match. This behavior is consistent with tacit collusion. Royal Scoop, while producing the highest quantity of ice cream cones, is not setting the market price and therefore is not the price leader.

There Are Four Ice Cream Shops on a Small Tourist