Chapter 12R, Problem 3MCQ

To determine

The correct option for imposing antitrust policy in given situation.

Answer to Problem 3MCQ

Option a is correct.

Explanation of Solution

Explanation for correct option:

a.

Cartel refers to the formation of groups that explicitly agrees to reduce the output level so that high prices can be charged. Cartel formation is illegal where members can cheat on agreement. For instance, cartel member reduces the oil production so that oil prices can be increased. Government can impose antitrust policy to control such acts. Therefore, option a is correct.

Explanation for incorrect options:

b.

Collusion is possible in oligopoly where there are few firms operating in the industry. In tacit collusion there is no legal agreement between the firms so that they can realize higher revenue and profit. Therefore, option b is incorrect.

c.

By enforcing antitrust policy, government cannot prevent firm’s interdependence due to which they can exhibit tit-for-tat behavior.. Therefore, option c is incorrect.

d.

In duopolistic market structure, product can be differentiated for which higher prices can be charged. It cannot be prevented by enforcing antitrust policy. Therefore, option d is also incorrect.

e.

Producer can produce in excess quantity depending upon their forecast for future demand. Therefore, option e is incorrect.

Economics Concept Introduction

Market structure: Market structure can be defined as the structure that is selected by the firms to conduct their business activities by offering certain products and services to meet or generate demand of customers.