Final answer:
The assertion that high-cost producers in a cartel may cheat by selling more at lower prices, leading to the breakdown of the cartel, is true. Cartels are unstable due to individual incentives to cheat and the illegality of explicit collusion.
Step-by-step explanation:
The student's question pertains to the reasons cartels breakdown, particularly from the perspective of high-cost producers within the cartel. It's true that cartels can provide the highest profits for their members by acting like a monopolist: reducing output and raising price. However, the stability of a cartel is often threatened because each member has an incentive to expand output to gain more market share and increase profits, which can lead to undercutting the agreed prices. This is especially true for high-cost producers who may seek to reduce prices to sell more of their products, leading to a breakdown of the cartel. Enforcement is difficult as collusion, especially when cartels are formalized, is illegal and tacit collusion relies on an implicit understanding that is hard to prove.
In summary, members with the highest cost of production might cheat to compensate for their less efficient operations, which leads to an eventual breakdown of the cartel. Cartels tend to be unsustainable because they are built on trust among competitors who all have strong individual incentives to cheat for extra gains, and because explicit collusion is often illegal and thus subject to enforcement action.