Answer to Question #103989 in Macroeconomics for moses

Question

WHAT TYPE OF FIRM IS A CARTEL?

Answer 1

Created by a formal agreement, a cartel is an entity formed between a few producers of goods or services to regulate supply in order to manipulate the prices and reduce competition. Also, cartels restrict the output being released into the market and set policies that govern the members of the agreement. All this is an effort to maximize profit. Therefore, there are two forms of cartels namely, joint profit maximization also known as perfect cartel and a market-sharing cartel. Under perfect cartel, firms producing the same goods form a central cartel panel in the business firm and decide on the prices and output level. In a market-sharing agreement, there is a price contest where low-cost entities push for modest prices, and high-cost entities push for inflated rates. There is also a quota agreement where firms agree on a uniform price.