Question

Gary's Gas and Frank's Fuel are the only two providers of gasoline in their small town. Gary and Frank decide to form a cartel to raise the price of gasoline. The total industry profits are highest when ________, and Gary's profits are highest when ________. Group of answer choices both Gary and Frank cheat on the agreement; both Gary and Frank cheat on the agreement both firms cheat on the agreement; Gary cheats on the agreement and Frank does not cheat neither firm cheats on the agreement; Gary cheats on the agreement and Frank does not cheat neither firm cheats on the agreement; neither firm cheats on the agreement

Answer 1

neither firm cheats on the agreement; Gary cheats on the agreement and Frank does not cheat

Step-by-step explanation:

Gary's Gas and Frank's Fuel operate an oligopoly.

An Oligopoly is when there are few large firms operating in an industry. While, a monopoly is when there is only one firm operating in an industry.

Oligopolies are characterised by:

• price setting firms
• product differentiation
• profit maximisation
• high barriers to entry or exit of firms
• downward sloping demand curve

A cartel is when two or more producers of a certain good or service come together to regulate either the price of their good or the quantity of their goods that would be supplied. The producers that come together are usually competitors.

A tight oligopoly is when at most 8 firms hold at least 50% of the market share. there is usually cooperation among the firms

If both firms collude to increase prices, there would be an increase in total profits.

Gary's profits are highest when he cheats on the collusion and sells at a lower price. He would sell more due to his lower prices than Frank.