Discuss the actions a cartel can take to help it sustain its market power and longevity.
What will be an ideal response?
Cartels are most likely to be successful when they limit their membership number
to make it easier for the colluding firms to reach consensus on pricing and production
decisions. The plans are often laid out in cartel agreements or binding contracts to
which the individual members are expected to adhere. Mutually satisfactory plans will
help limit cheating and prevent the outbreak of internal price wars that could undermine
the cartel’s profitability as a whole. The cartel members can help solidify the group’s
market dominance by restricting output to support joint profit maximization, by acquiring
control of key resources and inputs, and by restricting competition—for example, by blocking new firms from entering the industry. Because cartels are illegal under antitrust
laws in the United States (and many other nations), the collusive groups are better
assured of longevity if they operate only where they are legally allowed. Those choosing
to operate illegally must maintain a high level of secrecy to survive.
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If the market price of a good does NOT include all of the costs and benefits that arise from the production or consumption of the good, then
A) the market is perfectly competitive. B) an externality is present. C) society is consuming and producing the optimal amount of the good. D) resources are properly allocated.
A price floor is
a. a maximum price above which the good cannot be legally bought or sold b. the lowest price buyers are willing to pay for a good. c. a minimum price below which the good cannot be legally bought or sold. d. a minimum price above which the good cannot be legally bought or sold.
Sarah earns $40,000 per year working for a large corporation. She is thinking of quitting this job to work full time in her own business. She will invest her savings of $50,000 (which currently has an annual 10% rate of return) into the business. Her annual opportunity cost of this new business is
A) $0. B) $40,000. C) $45,000. D) $90,000.
For a monopolistically competitive firm in long-run equilibrium,
A. the demand curve must be tangent to the average total cost curve at the ATC curve minimum. B. at the profit-maximizing quantity, the demand curve must be tangent to the average total cost curve. C. the demand curve must intersect the average total cost curve at the ATC curve minimum. D. at the profit-maximizing quantity, the demand curve must intersect the average total cost curve.