Which among the following is/are true for a Cartel ?
I. It aims at maximising of individual firm’s profit.
II. It decides the total output in the industry to which Cartel represents .
III. It does not fix the price at which members sell their output.
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Question

Prepp Team · Accepted Answer

Analyzing Cartel Characteristics

A cartel is a formal agreement among firms in an industry to coordinate their actions, acting essentially as a single entity to increase their collective profits. We need to evaluate the truthfulness of the given statements about cartels.

Statement I: It aims at maximising of individual firm’s profit.
This statement is generally false. Cartels aim to maximize the *joint* or *collective* profits of all member firms. This often requires individual firms to restrain their output below the level that would maximize their own standalone profits.
Statement II: It decides the total output in the industry to which Cartel represents.
This statement is true. A primary function of a cartel is to control the aggregate supply within the industry. By setting a total output limit, the cartel can restrict supply, reduce competition, and increase prices, similar to a monopoly.
Statement III: It does not fix the price at which members sell their output.
This statement is generally false. To prevent competition among members and maintain higher prices, cartels typically establish a common pricing policy or fix the price at which all members must sell their products.