The figure given below shows a situation where the producers of good X are forming an international cartel. Here, MR = Marginal Revenue, MC = Marginal Cost, and P = Price. The cartel use monopoly pricing for its output. A declining market share of the cartel would lead to a:

Question

The figure given below shows a situation where the producers of good X are forming an international cartel. Here, MR = Marginal Revenue, MC = Marginal Cost, and P = Price. The cartel use monopoly pricing for its output.  A declining market share of the cartel would lead to a:

Quizplus · Accepted Answer

A declining market share of the cartel would mean that there are more competitors in the market and therefore the cartel's market power would be reduced. This would lead to a leftward shift of the cartel demand curve, as the cartel would have to decrease its price to maintain its sales. As a result, the cartel's marginal revenue curve would also shift leftward. In order to maximize profits, the cartel would reduce its output, which would cause a leftward shift of the cartel marginal cost curve. Therefore, a declining market share of the cartel would lead to a leftward shift of the demand and marginal revenue curves, which would result in a fall in cartel output as the cartel would try to maintain its price and profits.

The Figure Given Below Shows a Situation Where the Producers