Author Question: Why do firms in an oligopoly find it difficult to cooperate and not cheat on a cartel agreement? ... (Read 167 times)

lunatika

  • Hero Member
  • *****
  • Posts: 548
Why do firms in an oligopoly find it difficult to cooperate and not cheat on a cartel agreement?
 
  What will be an ideal response?

Question 2

The above table gives the demand and supply schedules for cat food. If the price is 3.
 
  00 per pound of cat food, will there be a shortage, a surplus, or is this price the equilibrium price? If there is a shortage, how much is the shortage? If there is a surplus, how much is the surplus? If 3.00 is the equilibrium price, what is the equilibrium quantity?



upturnedfurball

  • Sr. Member
  • ****
  • Posts: 334
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' total revenue and profit decrease, 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

At a price of 3.00 per pound of cat food, there is a surplus. The surplus equals 44 tons (the quantity supplied) minus 35 tons (the quantity demanded), or 9 tons of cat food.



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
 

Did you know?

Oliver Wendell Holmes is credited with introducing the words "anesthesia" and "anesthetic" into the English language in 1846.

Did you know?

Between 1999 and 2012, American adults with high total cholesterol decreased from 18.3% to 12.9%

Did you know?

Russia has the highest death rate from cardiovascular disease followed by the Ukraine, Romania, Hungary, and Poland.

Did you know?

Oxytocin is recommended only for pregnancies that have a medical reason for inducing labor (such as eclampsia) and is not recommended for elective procedures or for making the birthing process more convenient.

Did you know?

Most women experience menopause in their 50s. However, in 1994, an Italian woman gave birth to a baby boy when she was 61 years old.

For a complete list of videos, visit our video library