Which makes it easier for a cartel to operate effectively over time?
A) Demand for the cartel's product decreases.
B) Demand for the cartel's product becomes more elastic.
C) The number of substitutes for the cartel's product increases.
D) Each member firm observes the pricing and output decisions of other firms in the cartel.

Question

Quizplus · Accepted Answer

When each member firm observes the pricing and output decisions of other firms in the cartel, it becomes easier for the cartel to operate effectively over time. This is because the firms can coordinate their actions and ensure that they are all following the same pricing and output strategies. As a result, the cartel can maintain higher prices and profits than if each firm operated independently. Choices A, B, and C all make it more difficult for the cartel to operate effectively over time, as they either decrease demand for the cartel's product or increase competition from substitutes.

Which Makes It Easier for a Cartel to Operate Effectively