The ABC Nail Company has entered into a collusive agreement with the other firm in the industry, the DC Nail Company. What occurs in the nail industry if ABC decides to cheat on the agreement?
A) The total profits in the nail industry will decrease.
B) The total industry output increases.
C) ABC lowers the price of its nails.
D) All of the above answers are correct.

Question

Quizplus · Accepted Answer

When a firm cheats on a collusive agreement, it typically lowers its prices to increase its market share, which leads to an increase in total industry output as the cheating firm tries to sell more. However, this action disrupts the collusive agreement's intended purpose of keeping prices high, leading to a decrease in total profits for the industry as prices become more competitive.

The ABC Nail Company Has Entered into a Collusive Agreement