Profit-maximizing cartels choose price equal to:
A) marginal cost.
B) average total cost of the last unit.
C) marginal revenue.
D) the monopolistically competitive price.
E) the monopoly price.

Question

Quizplus · Accepted Answer

A profit-maximizing cartel would aim to act like a monopoly and choose the price that maximizes profits, which is the monopoly price. At this price, the cartel can restrict output and charge a higher price compared to the competitive market equilibrium, resulting in higher profits for its members. Choosing a price equal to marginal cost or average total cost would not earn the cartel any profit, and choosing marginal revenue or the monopolistically competitive price would not give the cartel the level of market power it desires to maximize profits.

Profit-Maximizing Cartels Choose Price Equal To