What happens to the profit-maximizing cartel price and quantity if the marginal cost of production declines?
A) The sellers are no longer price takers, so the change in marginal cost has no impact on the cartel outcome.
B) If demand is downward sloping, the optimal cartel price should decline and the market quantity should increase.
C) The sellers retain the same pricing strategy and capture higher per-unit profits.
D) The cartel price increases and market quantity declines.

Question

Quizplus · Accepted Answer

If the marginal cost of production declines, it becomes cheaper for the cartel members to produce more units, which could lead to an increase in the market quantity. If demand is downward sloping, a decrease in the cartel price could also be necessary to sell the additional quantity. Therefore, the optimal cartel price should decline and the market quantity should increase.

What Happens to the Profit-Maximizing Cartel Price and Quantity If