In a cartel, when more than one firm cheats by producing more than the agreed-upon quota, the market price
A) falls and the benefit for each cheating firm increases.
B) falls and the benefit for each cheating firm decreases.
C) rises and the benefit for each cheating firm increases.
D) rises and the benefit for each cheating firm decreases.

Question

Quizplus · Accepted Answer

When more than one firm in a cartel cheats by producing more than the agreed-upon quota, the market becomes oversupplied, leading to a decrease in the market price. As a result, while the cheating firms may sell more units, the lower price means that the additional revenue gained from selling more units is likely to be offset by the lower price per unit, thus decreasing the benefit for each cheating firm.

In a Cartel, When More Than One Firm Cheats by Producing