Figure: Competitive Market Reference: Ref 15-1 (Figure: Competitive Market) Refer to the figure. If all firms in the market form a successful cartel, price and output in the market would be:
A) P1 and Q1.
B) P1 and Q2.
C) P2 and Q1.
D) P2 and Q2.

Question

Figure: Competitive Market  Reference: Ref 15-1 (Figure: Competitive Market) Refer to the figure. If all firms in the market form a successful cartel, price and output in the market would be:
A) P1 and Q1. 
B) P1 and Q2. 
C) P2 and Q1. 
D) P2 and Q2.

Quizplus · Accepted Answer

If all firms in the market form a successful cartel, they would act as a monopoly, and thus output would decrease to Q1, and price would increase to P2, just as it would in a monopoly. Therefore, the correct answer is C.