If an oligopolistic industry organizes itself as a coop-
erative cartel, it will produce a quantity of output that

is the competitive level and the monopoly level.
a. less than, more than
b. more than, less than
c. less than, equal to
d. equal to, more than

Answer

c. less than, equal to.

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Principles of Microeconomics

Chapter 17

Oligopoly

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Video Transcript

So here we're talking about the scenario when you have firm forming into a cartel and so cartel is just a type of oligopoly. And when we're in a cooperative cartel, they're gonna basically act as if they are a monopoly. And so we know about a monopoly. We know that the monopoly will produce at the quantity where a marginal revenue equals marginal cost. And so based on that, we can decide that. Okay, so this is M. C. This is M R. And so the firm is gonna say, All right, we want to produce at this quantity right here. We're gonna call that Q. And so they're gonna produce at that quantity. But the difference here is that let's say we have a demand curve that goes something like this. The difference is that they're gonna charge the price up here so they will charge a price that is, add this quantity and this is the price, right? So this right here, this big green box between your marginal cost and the price that they actually charge is all just profit. Graph it. So when you have a cartel, this is just a bunch of firms deciding that. Hey, if we all act as a monopoly and if we kind of stifle the quantity that we produce, then that's the point where we're gonna make the most profit. And so that's what they do. So basically, a competitive level competitive market would gradually have everything sold, um, at the place where so competitive market, we know that that's the place where profit or the price is gonna be equal to the marginal cost. Well, in this scenario, we have prices greater than marginal cost here, Right in our, um, in our monopoly, we have price is greater than the marginal cost. Um, so now we're gonna say that the answer will be the quantity is gonna be less than the competitive level. They're gonna lose money.

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