If three firms of similar sizes join to form a cartel, then it is most likely that
A) they will charge a common, higher market price.
B) they will collectively produce more than before.
C) all three firms will stop producing.
D) all three firms will earn zero profits.

Question

Quizplus · Accepted Answer

When three firms of similar sizes join to form a cartel, they will most likely charge a common, higher market price because they will have more market power to limit supply and thereby increase prices. This will allow them to earn supernormal profits together as a cartel instead of competing against each other and potentially earning lower profits individually.

If Three Firms of Similar Sizes Join to Form a Cartel