Question

​Trendy's and Style Store are the only two clothing manufacturers in a market. The two stores wish to collude to form a cartel. Based on the payoff matrix to the​ right, what level of output should each firm select if they wish to maximize joint​ profits? The first number in each pair is​ Trendy's profit; the second is Style​ Store's profit. All numbers are in millions of dollars. Trendy should choose ▼ a high output a low output ​, and Style Store should choose ▼ a high output a low output . One reason why this cartel is likely to fail is because A. the​ cartel's output is too high. B. it is not profitable. C. each firm has an incentive to cheat and produce more. D. there are too many firms in the market.

Answer 1

Answer: Trendy should choose a low output, and Style Store should choose a low output; One reason why this cartel is likely to fail is because each firm has an incentive to cheat and produce more (low output, a low output, option c: each firm has an incentive to cheat and produce more)

Step-by-step explanation:

a cartel can simply be said to be a union or the association of producers in some specific industry that arrive at a joint agreement/consensus to bring about or set common prices specific and also output quotas so as to mitigate, limit or prevent competition.

in the enforcement of a cartel agreement, it is very unreliable and difficult because firms in the cartel have an incentive to cheat on the agreement