Question

Suppose that all five of the producers of ready-mix cement in the Denver area have entered into a cartel agreement, so that they are producing and pricing at the profit-maximizing monopoly level How would a fim's managers "cheat" on this agreement? (Check all that apply.) A. A firm's managers could cheat on the agreement by producing more output than the agreed-on amount. B. A firm's managers could cheat on the agreement by raising its price. C. A firm's managers could cheat on the agreement by lowering its price. D. A firm's managers could cheat on the agreement by producing less output than the agreed-on amount Given that the four other competitors' reactions are not instantaneous, can cheating be profitable? (Check all that apply.) A. Cheating is profitable in the long run even after the other firms in the cartel take notice. B. The cheating firm will continue to profit from cheating until the cartel agreement collapses. C. The cheating firm will continue to profit from cheating even after the cartel agreement collapses. D. Cheating can be profitable only in the short run until the other firms in the cartel take notice.

Answer 1

1)

Answer: A and C.

Cheating takes place when firm either overproduce or charge lower price.

2)

Answer: d

Cheating is profitable until it is noticed by the other firms. If it is noticed by other, all will follow same strategy and profits of all go down.