Cartel members have an incentive to cheat on the cartel because:
A) the industry profit would be higher under competitive conditions.
B) the cartel price is the competitive price.
C) each member's output quota is too high.
D) each member's MR is not equal to the cartel's MC.

Question

Quizplus · Accepted Answer

Cartel members have an incentive to cheat because by individually producing more than their quota, they can increase their marginal revenue (MR) as long as it exceeds the marginal cost (MC) of producing the additional units, which is not aligned with the cartel's overall MC and profit-maximizing strategy. This discrepancy between individual MR and the cartel's MC encourages members to produce more than their agreed-upon quotas to maximize their own profits, undermining the cartel's price-setting power and stability.

Cartel Members Have an Incentive to Cheat on the Cartel