Cartels are inherently unstable because
A) any one firm can make additional profits by selling additional output at a price below the marginal cost.
B) of the disincentive to cheat.
C) firms behave like perfectly competitive firms and price at the market price.
D) any one firm can make additional profits by selling additional output at a price above the marginal cost.

Question

Quizplus · Accepted Answer

Cartels are inherently unstable because any one firm can benefit by deviating from the agreed prices or output levels set by the cartel. By selling additional output at a price above the marginal cost, a firm can make extra profits while still benefiting from the high prices maintained by the cartel's agreement. This incentive to cheat on the cartel agreement by producing more or selling at a lower price to capture more market share is a key reason for the instability of cartels.

Cartels Are Inherently Unstable Because