Question

What would happen if three more restaurants opened in a small town where only four restaurants were open for business originally? rev: 05_15_2018 Multiple Choice The restaurants would form a cartel in the town. People would pay higher prices to eat out. The town would raise significantly more taxes. The restaurants would become more like a competitive market.

Answer 1

If three more restaurants opened in a small town where only four restaurants were open for business originally then The Restaurants  would form a cartel in the town.

Explanation:

In such a situation the restaurant would preferably form a cartel. A Cartel is an association of various firms. This association is formed to keep the prices at a higher level. When a cartel is formed it restricts competition.

Cartel is formed with the mutual understanding of all the firms. The existence of cartels negatively affects the consumers, as they have to pay higher prices and cannot afford to bargain as the price will be determined by all the concerns collectively. It might result in limited supply and more demand which will result in price to increase.