Collusive agreements are typically difficult for cartels to maintain because each firm can increase profits by:
A)producing more than the quantity that maximizes joint profits.
B)producing less than the quantity that maximizes joint profits.
C)charging more than the price that maximizes joint cartel profits.
D)advertising less than will maximize joint cartel profits.

Question

Quizplus · Accepted Answer

Collusive agreements, such as those in a cartel, are difficult to maintain because each firm has an incentive to cheat on the agreement by producing more than the agreed-upon quantity. This allows the firm to capture a larger market share and increase profits, even though it undermines the collective profit maximization goal of the cartel.

Collusive Agreements Are Typically Difficult for Cartels to Maintain Because