The diagram below illustrates the international tin market.Assume that the producing and consuming countries establish an international commodity agreement under which the target price of tin is $5 per pound.
Figure 7.2.Defending the Target Price in Face of Changing Supply Conditions

-Consider Figure 7.2.Assume there exists a cartel of several producers that is maximizing total profit.If one producer cheats on the cartel agreement by decreasing its price and increasing its output,rational action of the other producers is to:
A) Increase their price in order to regain sacrificed profits
B) Decrease their price as well
C) Keep on selling at the agreed-upon price
D) Give the product away for free

Question

The diagram below illustrates the international tin market.Assume that the producing and consuming countries establish an international commodity agreement under which the target price of tin is $5 per pound.
Figure 7.2.Defending the Target Price in Face of Changing Supply Conditions
 
-Consider Figure 7.2.Assume there exists a cartel of several producers that is maximizing total profit.If one producer cheats on the cartel agreement by decreasing its price and increasing its output,rational action of the other producers is to:
A) Increase their price in order to regain sacrificed profits 
B) Decrease their price as well 
C) Keep on selling at the agreed-upon price 
D) Give the product away for free

Quizplus · Accepted Answer

If one producer cheats on the cartel agreement by decreasing its price and increasing its output, the rational action of the other producers is to decrease their price as well. This is because if the other producers keep their prices the same, they will lose market share to the cheating producer. By decreasing their prices, the other producers can maintain their market share and prevent the cheating producer from gaining an advantage.

The Diagram Below Illustrates the International Tin Market