The collusive solution is:
A)collectively irrational because each firm could produce more output in the Cournot solution.
B)individually irrational because each firm earns less than it could in the Cournot solution.
C)individually irrational because each firm has a private profit incentive to produce more output.
D)collectively irrational because joint profit incentives render the collusive solution unstable.

Question

Quizplus · Accepted Answer

In a collusive solution, firms agree to restrict output to maximize joint profits. However, each firm has an individual incentive to cheat by producing more to increase its own profit, making the collusive agreement individually irrational.

The Collusive Solution Is