Question

An arrangement where there is explicit collusion between competitors to set a common price and adhere to output quotas is referred to as:

Option 1: Perfect competition
Option 2: Price discrimination
Option 3: Cartel
Option 4: Monopoly

Answer 1

A cartel is an arrangement where competitors in a market engage in explicit collusion to control prices and output quotas, acting similarly to a monopoly.

Step-by-step explanation:

When competitors in a market agree explicitly on setting common prices and output quotas, this arrangement is known as a cartel. This behavior is a form of collusion, typically occurring in an oligopoly scenario where a few firms dominate the market. By colluding, these firms attempt to act similarly to a monopoly, restricting output and setting higher prices, thereby maximizing their profits as a single entity, rather than competing with each other. However, such explicit collusion is illegal in many jurisdictions because it undermines competition and is harmful to consumers.