The following table shows the payoff matrix of the two firms (Firm X and Firm Y), in dollars, when they advertise and when they do not advertise.Table 12.1

-Which of the following is true of a successful cartel?
A)A successful cartel offers consumers the lowest possible price for a product.
B)A successful cartel minimizes profits for its members.
C)A successful cartel behaves as a monopolist in the market.
D)A successful cartel produces a quantity greater than that produced in a competitive market.
E)A successful cartel is always stable.

Question

The following table shows the payoff matrix of the two firms (Firm X and Firm Y), in dollars, when they advertise and when they do not advertise.Table 12.1
 
-Which of the following is true of a successful cartel?
A)A successful cartel offers consumers the lowest possible price for a product. 
B)A successful cartel minimizes profits for its members. 
C)A successful cartel behaves as a monopolist in the market. 
D)A successful cartel produces a quantity greater than that produced in a competitive market. 
E)A successful cartel is always stable.

Quizplus · Accepted Answer

A successful cartel behaves as a monopolist in the market by coordinating the production and pricing decisions of its members to maximize profits. This may result in higher prices and reduced output for consumers, but it benefits the members of the cartel who can earn higher profits by limiting competition. A successful cartel does not necessarily offer the lowest possible price or produce a quantity greater than that produced in a competitive market, and it may or may not be stable depending on factors such as defection and enforcement mechanisms.

The Following Table Shows the Payoff Matrix of the Two