### Quiz Question: Understanding Cartel Failures**Question:**What is the primary reason that cartels fail to work?**Options:**- ⬜ Becoming a cartel reduces barriers to entry for new firms.- ⬜ It is trivial for one firm to force the other cartel members out of the market and become a monopoly.- ⬜ Firms in a cartel can increase their profits by breaking the agreements made with the other cartel firms.- ⬜ Anti-trust law is quick to break up cartels.- ⬜ Operating as part of a cartel is more expensive and reduces profits.**Explanation:**Cartels are agreements between competing firms to control prices or exclude entry of a new competitor in a market. They are illegal in many jurisdictions. The primary reason cartels tend to fail is due to the incentive for individual firms to cheat on the cartel agreement. While collusion might lead to higher prices and profits for the cartel as a whole, individual firms can increase their profits even more by secretly undercutting the agreed-upon prices or overproducing. Another contributing factor is the enforcement of antitrust laws aimed at breaking up cartels to ensure fair competition.**Key Concepts:**- **Entry Barriers:** Cartels typically try to maintain high barriers to entry for new firms to protect their market share.- **Monopoly Standoff:** One firm might attempt to dominate the cartel, leading to internal conflict.- **Cheating Incentives:** Members might break agreements to gain individual profit advantages.- **Regulatory Impact:** Strong anti-trust laws can dissolve cartels.- **Cost Implications:** Operating within a cartel may incur additional costs, thus reducing overall profitability.Understanding these dynamics is crucial for comprehending why cartels are generally unstable and face challenges in maintaining their agreements over the long term.

A group of firms acting in unison in order to produce at monopoly level of output so as to maximize…

What is the primary reason that cartels fail to work? Becoming a cartel reduces barriers to entry for new firms. It is trivial for one firm to force the other cartel members out of the market and become : Firms in a cartel can increase their profits by breaking the agreements made with the oth

What is the primary reason that cartels fail to work? Becoming a cartel reduces barriers to entry for new firms. It is trivial for one firm to force the other cartel members out of the market and become : Firms in a cartel can increase their profits by breaking the agreements made with the oth

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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