In a cartel, the incentive to cheat is significant because
A)each individual member has the incentive to restrict its own output to maximize profit.
B)the marginal cost is equal to the cartel price at the profit-maximizing output level.
C)each firm has the incentive to lower its price to sell more than the allotted amount.
D)each firm has the incentive to cheat by raising its price to maximize profit.
E)price is less than marginal cost for each member of the cartel.

Question

Quizplus · Accepted Answer

Each firm in a cartel has the incentive to lower its price to sell more than the allotted amount because by doing so, they can increase their individual profits, even though it may undermine the cartel's collective agreement to restrict output and maintain higher prices.

In a Cartel, the Incentive to Cheat Is Significant Because