Question

If a cartel is successful

Multiple Choice
the firms will act like a monopoly.
the consumers will pay lower prices.
the firms will lose profits in a perfectly competitive market.
the consumers will have more goods and services to choose from.

Answer 1

A successful cartel leads to firms acting as a monopolist, thereby increasing their profits at the expense of consumers, who face higher prices and reduced options.

Step-by-step explanation:

When firms form a cartel, they collectively agree to restrict output and raise prices, similar to the behavior of a monopolist. This collective action yields a higher monopoly price and quantity where marginal revenue (MR) equals marginal cost (MC). As a result, members of the cartel earn higher profits as they benefit from the reduced competition and higher prices they can charge consumers. However, given that such collusion is often illegal and incentives exist for individual members to cheat by expanding output, cartels can be unstable.

If cartels are successful, they can sustain monopoly-like power over market prices and outputs, leading to higher profits for firms within the cartel. By acting like a monopoly, the cartel members restrict industry output and raise prices, which usually means that consumers face higher costs and have fewer options, contrary to what would occur in a perfectly competitive market.