Chapter 64, Problem 2FRQ

a)

To determine

The two major deterrents to cartels among oligopolistic industries in the country U.

Explanation of Solution

The primary reason for cartels in oligopolistic industries in the country U is that they are illegal here; under American antitrust law, most cartel practices are punishable by criminal prosecution, while others, including monopolization, are punishable by civil sanctions.

The second key factor is that cartels raise prices above the cost of production, which incentivizes businesses to violate the cartel agreement in order to increase profits. Cartels often disintegrate as a result of this motivation to cheat.

Economics Concept Introduction

Introduction: The market structure can be determined by a number of factors such as the number of buyers, sellers, competition, and barriers or freedom to enter or exit. Due to interdependence in the market, firms must predict how their rivals will react to adjustments in output, prices, or other components of non-price competition.

b)

To determine

The reason why firms in an oligopoly are interdependent but not in a perfectly competitive monopoly.

Explanation of Solution

By taking a non-cooperative stance and increasing output, the company will lower the price and due to their greater costs, the company's rivals will lose money by offering lower prices while the business continues to turn a profit. The business might be able to drive out its rivals by increasing output.

As a result, there would be less of a chance that the company would conspire with other companies in an oligopoly market structure to limit output in this situation.

Economics Concept Introduction

Introduction: The market structure can be determined by a number of factors such as the number of buyers, sellers, competition, and barriers or freedom to enter or exit. Due to interdependence in the market, firms must predict how their rivals will react to adjustments in output, prices, or other components of non-price competition.