Question

Suppose a new, rare metal was found that could provide electricity to a large number of households very inexpensively. Four firms control the land in which this rare metal can be mined. a. The market for this rare metal is most similar to: an oligopoly. monopolistic competition. perfect competition. a pure monopoly. b. Suppose the firms decide to work together to restrict output, therefore increasing price. It is said these firms are operating as a and engaging in . c. These firms will likely earn: economic profits. economic losses. normal profits. d. In the long run, it is likely: the firms will combine into a single firm. the firms will continue to restrict output. government will break up the group. government will subsidize the group.

Answer 1

A . The market for this rare metal is most similar to: Oligopoly.

In oligopoly, there are several firms that have a complete control over a certain industry. These firms do not necessarily have to work together to be considered as an oligopoly, but it would be almost impossible for new firm to come in and compete in the market.

From what we can see in this description above, there are only 4 firms that have access to the new rare metal. There are no chance for new smaller competitions to come in and compete in the industry,.

B. Suppose the firms decide to work together to restrict output, therefore increasing price. It is said these firms are operating as a Cartel and engaging in Collusion.

In business, cartel is a group of producers who work together in order to protect their common interest

Collusion is one of the activity that cartels can do in order to protect that interest. When they're involved in Collusion, These producers basically set an agreement within themselves on how much products they could sell in the market, the location of the distribution,  etc.

By doing this, they will completely override the influence of supply and demand in the market. By making their product become 'scarce' , they can   jacked up the price of the product since the demand will outnumbered their supply.

C. These firms will likely earn: economic profit

The practice of Cartel and Collusion give the producers with too much leverage over the customers. The ability to control the demand and supply in the market tend to resulted in enormous profit. They basically have the guarantee that all the products that they put in the market will be sold out.

D, . In the long run, it is likely:government will break up the group

Collusion are illegal in most countries.

Especially if the collusion involved a certain type of resources that is used by most people in the countries, not just a specific niche.

In the long run, the government will most likely make an effort to obtain more control in distributing such resources. They will investigate these companies and broke them up.

When their cooperation is broken, they will be forced to compete with one another. This will give the consumers with massive advantage since these companies will start to lower the price of their products in order to win over the customers' favor.