Final answer:
A cartel is a group of firms that collude on pricing and output to act like a monopolist, and such collusion is illegal in the United States. The Federal Trade Commission and Antitrust Division of the Justice Department ensure that collusion among firms is prevented, and this is an important area of study within the scope of business and economics, particularly in markets characterized by an oligopoly.
Step-by-step explanation:
The economic definition of a cartel is a group of firms that collude to produce the monopoly output and sell at the monopoly price. Therefore, the correct answer to the multiple-choice question is that a cartel involves competing firms working together to fix prices and output. When we refer to cooperation between firms in an industry to control markets, it is known as collusion. This behavior includes actions to reduce output and keep prices high.
In the context of the United States, cartels are deemed illegal due to antitrust laws, and various agencies such as the Antitrust Division of the Justice Department and the Federal Trade Commission are tasked with preventing collusion among firms. In highly competitive markets, companies often engage in product differentiation and may form an oligopoly, where a few firms dominate market sales. Game theory is often used to analyze these scenarios, especially in cases of imperfect competition where firms do not fit neatly into the categories of monopoly or perfect competition.