When a cartel member produces more than the agreed-upon quota, the net gain for that firm is calculated as the revenue earned from
A) a higher market price plus the revenue earned from producing more output.
B) a higher market price minus the revenue lost from producing more output.
C) producing more output minus the revenue lost from a lower market price.
D) producing more output divided by the revenue lost from a lower market price.

Question

Quizplus · Accepted Answer

A cartel is an agreement among producers to limit output and raise prices. If a cartel member produces more than the agreed-upon quota, it will earn additional revenue from selling the extra output. However, it will also lose revenue because the increased output will lower the market price. The net gain for the firm is the difference between the additional revenue earned from selling the extra output and the revenue lost from the lower market price.

When a Cartel Member Produces More Than the Agreed-Upon Quota