The Fab Five, a cartel of five firms, sells a homogenous product. The Oct-Pool cartel is composed of eight firms that can differentiate their products. In the given scenario, which of the following statements is true?
a. The firms of both cartels are likely to cheat on their cartel agreements.
b. The firms of both cartels are unlikely to cheat on their cartel agreements.
c. The Fab Five cartel firms are likely to cheat on their cartel agreement, while the Oct-Pool cartel firms are unlikely to cheat on their cartel agreement.
d. The Oct-Pool cartel firms are likely to cheat on their cartel agreement, while the Fab Five cartel firms are unlikely to cheat on their cartel agreement.
d
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What assumption about human motivation is made in economics? Explain
What will be an ideal response?
Suppose that an economics professor selects two students, Audrey and Michael, to participate in a classroom experiment. The professor gives Audrey twenty $1 bills. Audrey must pick an allocation of the twenty $1 bills to offer to Michael. If Michael accepts the allocation, each student keeps his or her portion of the money. If Michael rejects the allocation, the professor keeps the $20, and each
student receives nothing. Audrey selects $19 for herself and $1 for Michael. Based on the studies of human decision making, which of the following statements is correct? a. If Michael accepts the offer, he is behaving rationally. b. If Michael rejects the offer, he may value fairness more than $1. c. If Michael rejects the offer, Audrey made a bad choice by trying to keep $19 for herself. d. Any of the above could be correct.