A collusive agreement to form a cartel is difficult to maintain because
A) each member firm can increase its own profits by cutting its price and selling more.
B) forming a cartel is legal but frowned upon throughout the world.
C) supply will decrease because of the high cartel price.
D) demanders will rebel once they realize a cartel has been formed.
E) each firm can increase its profit if it decreases its production even more than the decrease set by the cartel.

Question

Quizplus · Accepted Answer

Each member has an incentive to cheat on the agreement and increase its own profits by cutting prices and selling more. This makes it difficult to maintain the cartel because if one member cheats, it will create an incentive for others to cheat as well, leading to the collapse of the cartel.

A Collusive Agreement to Form a Cartel Is Difficult to Maintain