Suppose all of the firms in a perfectly competitive industry form a cartel and agree to restrict output, thereby raising the price of the product. Individual Firm A will gain the most from the existence of the cartel if

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If all firms, except Firm A, cooperate and restrict output, then Firm A can increase its output and sell its product at a higher price, earning more profits than it would in a competitive market. If all firms, including A, restrict output, then Firm A would miss out on potential profits from increasing its output. If no firms restrict output, then it would be a competitive market and no one would benefit from the cartel. If Firm A restricts output while the other firms do not, then it may lose market share and profits to the other firms. If all firms revert back to their competitive outputs, then the cartel would dissolve and prices would return to the competitive level, resulting in lower profits for all firms.

Suppose All of the Firms in a Perfectly Competitive Industry