Why do oligopoly firms find it difficult to cooperate and not ...

[kodithompson]

Why do oligopoly firms find it difficult to cooperate and not cheat on a cartel agreement?
 
  What will be an ideal response?

Question 2

If a nation opens up to free trade and becomes an importer of goods, which of the following is then true?
 
  A) The nation as a whole loses.
  B) Sellers gain.
  C) Buyers gain.
  D) Buyers lose.

[paavo]

Answer to Question 1

Firms in an oligopoly have large market shares. When they change their output or price, the firm affects not only its own revenue and profit but also the revenue and profit of other firms. For example, if a firm cheats on a cartel agreement by lowering its price, it will capture a larger market share. The competitors will see a decrease in their total revenue and their profit but the cheating firm's profit increases. If the firms cooperate, they could act like a monopoly and have the maximum joint profit but each firm has the temptation to cheat and produce more than its share. This temptation is strong because cheating will increase the cheater's revenue and profit substantially.

Answer to Question 2

C

[kodithompson]

Correct answers!

[paavo]

Great! Please up vote