Question

Isabella runs an IT solutions business for her college peers and has only one competitor, Franco. Isabella and Franco have decided to collude and provide monopoly-level output. This agreement is sustainable if:

a. both are freshmen and intend to run their businesses for the next three years.
b. both are seniors.
c. Franco plans to transfer to another college next year.
d. Isabella and Franco are friends when they start colluding.

Answer 1

The sustainable agreement between Isabella and Franco to collude and provide monopoly-level output depends on Franco's plan to transfer to another college next year.

Step-by-step explanation:

The sustainable agreement between Isabella and Franco to collude and provide monopoly-level output depends on the condition that Franco plans to transfer to another college next year.

Collusion and setting prices collaboratively are illegal in many parts of the world. Therefore, if Franco plans to transfer, the agreement becomes sustainable as they will not be operating in the same market.