Question

Which of the following conditions can help prolong the life of a​ cartel? A. There are many firms in the market that are not members of the cartel. B. There are only a few firms in the market and they all belong to the cartel. C. The cartel has no ability to punish members who cheat on the cartel. D. It is difficult to know what price any cartel member is actually charging.

Answer 1

Answer:

The correct answer is option B.

Explanation:

An oligopoly is a market structure in which there are few firms which are interdependent on each other such that price and output decisions of a firm affect other firms in the market. There is a high degree of competition in the market.  

Firms in an oligopoly market can maximize profits by forming formal or informal collusion and reducing output level and increasing price.  

Though such cartels are generally short-lived as each firm has the incentive to earn higher by not cooperating. The cartel will not be successful if there are other firms in the market which are not a member of the cartel.  

A cartel will have a longer life if all the firms in the market are its market and the cartel has strict control on its members and ability to punish cheaters.