Cartel Objective: Maximising Industry Profits
A cartel involves multiple firms agreeing to coordinate their actions, essentially acting as a single entity in the market.
The fundamental purpose behind forming a cartel is to exert market control, similar to a monopoly.
Primary Goal Analysis
By colluding, cartel members aim to:
- Restrict the overall supply of goods or services.
- Increase the market price above competitive levels.
The combined effect of these actions is to maximize the total profits earned by all participating firms together. This collective profit is referred to as industry profits.
Reasoning for Correct Choice
Let's examine the options in relation to the cartel's objective:
- Individual Profits: While firms hope their individual profits will increase, this is a result of the collective strategy, not the primary stated goal of the group's formation.
- Industry Profits: This represents the total profit of all members combined and is the direct target of the cartel's price-fixing and output-restricting strategies.
- Share of Output: Determining individual output shares is often a necessary internal agreement for a cartel to function, but it's a means to an end, not the ultimate objective itself.
- Goodwill of Members: Goodwill is a secondary consideration or potential outcome, not the core economic objective driving the formation of a cartel.
Therefore, the primary aim is to maximize the overall economic benefit for the group, which is industry profits.
Important Questions from Price determination under different market forms
The demand curve that a firm faces in a perfectly competitive market is perfectly _______________ ; it is a _____________straight line at the market price.
For a monopolist, profit is maximized at that level of output where:
When the maximum price is fixed below the equilibrium price, which of the following occurs as a result?
Excess supply
Excess demand
Black marketing
A price ceiling below the equilibrium price of a commodity leads to
A. Commodity glut in market
B. Shortage of commodity
C. Demand erosion
D. Black marketing
Choose the correct answer from the options given below:
Given below are two statements, one is labelled as Assertion A and the other is labelled as Reason R
Assertion A: An oligopolist firm cannot decide the price it wishes to charge as well as the quantity it wishes to sell, both at the same time.
Reason R: An oligopolist firm takes into consideration the competitor's actions and counter actions because of a strong interdependence among the competitive firms
In light of the above statements, choose the most appropriate answer form the options given below
