171k views
0 votes
is marginal revenue facing a single firm in the cartel different than the marginal revenue curve facing the whole market? if not, which is higher and why?

User Mutil
by
8.3k points

1 Answer

5 votes

Final answer:

Marginal revenue for a single firm in a cartel is different from the MR curve facing the whole market; it can be higher due to the ability to influence prices with additional output, leading to potential instability within the cartel.

Step-by-step explanation:

Is the marginal revenue facing a single firm in the cartel different than the marginal revenue curve facing the whole market? Yes, the marginal revenue (MR) curve for a single firm in a cartel is typically steeper than for the whole market, which behaves more like a monopolist.

A firm in perfect competition is a price-taker with a perfectly elastic demand curve, meaning its MR curve is horizontal at the market price because every additional unit sold increases revenue by exactly the market price. However, if firms form a cartel, they act collectively as a monopoly, deciding on output quantity where MR equals marginal cost (MC). The cartel's MR curve slopes downward since it can influence the price by changing its output.

The single firm within a cartel, if cheating and producing more than the agreed quantity, faces a downward-sloping MR curve because the extra output could affect market prices to some extent. Therefore, the single firm's MR in a cartel could potentially be higher than that of the cartel as a whole since the firm could benefit from producing additional units at a higher price than if it strictly followed cartel agreements. Ultimately, this could lead to a breakdown of the cartel as other firms start cheating as well.

User Urszula
by
7.5k points
Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.