When two or more large firms form a cartel, the price of products would_______ and the output would_______________. This collusive behaviour more likely leads to a/an____________ in the level of efficiency.

Question

BlackTom AI · Accepted Answer

Cartel behaviour mimics monopoly: firms collude to act as a single seller, so price is pushed above competitive levels while total industry output is restricted.

1) Relevant knowledge points and concepts
- Perfect competition vs. monopoly/cartel: competitive markets set P = MC and produce higher output; monopolies (or cartels) set output where MR = MC and charge a higher price on the demand curve.  
- Allocative efficiency: occurs when P = MC. If P > MC, allocative inefficiency and deadweight loss result.  
- Productive and dynamic efficiency: lack of competition can increase costs (X-inefficiency) and reduce incentives to innovate.

2) Step-by-step reasoning
- Two or more large firms forming a cartel coordinate prices and outputs rather than competing.  
- The cartel chooses the joint profit-maximising output by equating industry marginal revenue (MR) with marginal cost (MC). That MR = MC output is below the competitive output (where P = MC).  
- Having chosen a lower total quantity, the cartel charges a higher price (read off the demand curve at the restricted quantity).

3) Intermediate (graphical) steps (conceptual)
- Competitive equilibrium: Qc where supply (MC) intersects demand, price Pc = MC.  
- Cartel/monopoly equilibrium: find Qm where MR = MC; Qm < Qc. Price Pm on demand curve at Qm is > Pc.  
- The area of lost transactions between Qm and Qc is deadweight loss.

4) Why the correct answer is correct
- Price: increases because the cartel restricts output to raise market price above the competitive level.  
- Output: decreases because the cartel reduces total industry supply to maximise joint profits.  
- Efficiency: decreases because P > MC creates allocative inefficiency (deadweight loss); lack of rivalry also tends to create productive and dynamic inefficiencies.

5) Why other options are incorrect
- Options b and d claim price decreases and output increases — opposite of cartel incentives; collusion does not lower price or expand output.  
- Option c has the correct direction for price/output but claims efficiency increases — incorrect because collusion creates deadweight loss and reduces allocative/productive efficiency.

6) Conclusion
All reasoning shows cartels lead to higher prices, lower output, and a decrease in efficiency; thus the correct choice is a. Increase; decrease; decrease.

When two or more large firms form a cartel, the price of products would_ and the output would_. This collusive behaviour more likely leads to a/an____ in the level of efficiency.单项选择题

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When two or more large firms form a cartel, the price of products would_______ and the output would_______________. This collusive behaviour more likely leads to a/an____________ in the level of efficiency.单项选择题