Relative to a profit-maximizing competitively organized industry that is producing 6,000 units of output at a price of $7 per unit, firms acting collusively under the same circumstances would produce ________ units of output and charge a price of ________ per unit.
A) 6,000; $7
B) more than 6,000; more than $7
C) less than 6,000; less than $7
D) less than 6,000; more than $7

Question

Quizplus · Accepted Answer

Firms acting collusively tend to reduce output to increase prices. This is because by limiting supply, they can exert some control over the market price, thus increasing their profits. Therefore, compared to a competitive market, a collusive arrangement would produce less than 6,000 units and charge more than $7 per unit.

Relative to a Profit-Maximizing Competitively Organized Industry That Is Producing