If five firms of similar sizes join to form a cartel, then it is most likely that
A) they will charge a common, lower market price.
B) they will collectively produce less than before.
C) all five firms will earn the same profits as before.
D) all five firms as a group will have falling profits, but increased output.

Question

Quizplus · Accepted Answer

When firms form a cartel, they aim to reduce competition and increase their earnings by collectively restricting output and raising prices. Therefore, it is most likely that they will produce less than before. This decrease in output allows them to charge higher prices and earn higher profits than they would have in a competitive market.

If Five Firms of Similar Sizes Join to Form a Cartel