What conditions are necessary for a cartel to work? Diagram equilibrium price and output determination in a collusive oligopoly market. Explain how a decrease in demand accompanied by cheating by members can help break up a cartel
What will be an ideal response?
For a cartel to work, demand for their product must be inelastic (without substitutes) and there must be some means to monitor the firms to make sure they do not sell more than their quota, as prices are kept high by restricting output.
A decrease in demand puts downward pressure on price and, if firms try to maintain their levles of output by cheating, market output increases will continue to put downward pressure on price and cause cartel revenues to fall.
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By 1860, the U.S
(a) had achieved an equal distribution of income and wealth. (b) had experienced growth in both agriculture and manufacturing, but growth in manufacturing had begun to outpace agriculture. (c) land had become the primary income-earning asset. (d) experienced a slowdown in urbanization and rapid expansion in agriculture at the expense of manufacturing.
Distinguish economies and diseconomies of scale. How can the extent to which economies and diseconomies of scale explain the size and number of real world firms in an industry?