Table of contents

0. Basic Principles of Economics1h 5m
1. Reading and Understanding Graphs59m
2. Introductory Economic Models1h 10m
3. The Market Forces of Supply and Demand2h 26m
4. Elasticity2h 26m
5. Consumer and Producer Surplus; Price Ceilings and Floors3h 45m
6. Introduction to Taxes and Subsidies1h 46m
7. Externalities1h 12m
8. The Types of Goods1h 13m
9. International Trade1h 16m
10. The Costs of Production2h 35m
11. Perfect Competition2h 23m
12. Monopoly2h 13m
13. Monopolistic Competition1h 9m
14. Oligopoly1h 26m
15. Markets for the Factors of Production1h 26m
16. Income Inequality and Poverty35m
17. Asymmetric Information, Voting, and Public Choice39m
18. Consumer Choice and Behavioral Economics1h 16m

14. Oligopoly

One-Time Games and the Prisoner's Dilemma

Microeconomics

14. Oligopoly

One-Time Games and the Prisoner's Dilemma

Previous problem

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Multiple Choice

In a cartel, the incentive to cheat is significant because

Each firm has an incentive to decrease its own output

Each firm has an incentive to raise its price

Each firm has an incentive to expand its output

Each firm's marginal cost exceeds the price that the cartel sets

Previous problem

Verified step by step guidance

Understand the concept of a cartel: A cartel is a group of firms that collude to make collective decisions about production and pricing to maximize their joint profits, often by restricting output to raise prices.

Recognize the incentive to cheat: Each firm in a cartel has an incentive to cheat by expanding its output because by doing so, it can increase its own profits at the expense of the cartel's collective profit.

Analyze the relationship between marginal cost and price: In a cartel, the price is typically set above the marginal cost to maximize profits. However, if a firm's marginal cost is below the cartel's price, the firm can increase its profit by producing more units.

Consider the impact of cheating on the cartel: When a firm cheats by expanding output, it can lead to a decrease in the market price, which reduces the profits of all firms in the cartel, potentially destabilizing the cartel agreement.

Evaluate the sustainability of the cartel: The incentive to cheat makes it challenging for cartels to sustain their agreements in the long term, as individual firms prioritize their own profit maximization over collective goals.