10.28.10 Econ

10.28.10 Econ - 10/28/2010 Econ Notes Cartel people who get...

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10/28/2010 Econ Notes Cartel – people who get together in a conspiracy. A group of firms who decide that they’re not going to compete against each other but collaborate to establish prices and outputs The price is coming from a market We have a theory of monopoly. When an industry is monopolized, the firm wants to produce where marginal revenue = marginal cost and set the price at the price demand at that quantity.
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Cartel meister tells other sellers to cut back quantity to raise price. People in cartel must restrict output to raise price However the freerider problem = where the freerider (non-cartel member), will produce more than cartel members produce, therefore the free rider will always receive a greater revenue than cartel owners Problem with Cartel is that the firms who join the cartel cheat on the cartel and produce more than cartel quota. OPEC is a cartel that restricts output and raises the price. Cheaters go to OPEC and sign up for the quota but then produce more than the quota
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10.28.10 Econ - 10/28/2010 Econ Notes Cartel people who get...

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