Question

Answer these Multiple choice questions:

44. Cartels usually break down because: A) Cartel members are less efficient than non-cartel members. B) Easy entry conditions tend to undermine the market power of the cartel. C) There is a tendency for individual members to violate the production terms of the cartel agreement. D) The products of individual members tend to become differentiated over time.

45. According to the Stackelberg duopoly model, if both firms in the industry face identical demands and identical total production costs, then: A) The Stackelberg leader will produce more than the Stackelberg follower. B) The Stackelberg follower will produce more than the Stackelberg leader. C) The Stackelberg leader and Stackelberg follower will produce identical output. D) The outcome is identical with that predicted by the Cournot model.

Answer 1

44) C) There is a tendency for individual members to violate the production terms of the cartel agreement

They are illegal, and fines and jail-time could await firms or individuals cartels leave incentive for one firm to cheat the other firm . Firms typically end up at the non-cooperative output (Nash Equilibrium); this is the point of least danger for the firm . When demand is elastic they have a tendency to cheat and over produce to get more profits .

45) C) The Stackelberg leader and Stackelberg follower will produce identical output . In Stackleberg it is a sequential move game . If both leader and follower have same marginal cost , output and profit will be same .