Suppose that three firms make up the entire bicycle manufacturing industry, and

Question

Suppose that three firms make up the entire bicycle manufacturing industry, and they have been enjoying high profits through a cartel agreement. Which of the following may cause their cartel to fall apart? Check all that apply. The owner of one of the firms in the cartel plans to retire and close her firm. Two of the firms suspect that the other firm, Abe's Bikes, is exceeding its allocated level of production. The three firms in the cartel have very different average cost curves. The three firms in the cartel control a resource necessary to make bicycle manufacturing.

Explanation / Answer

Correct option: Option 2 and 3

Only under these circumstances will cooperation cease to exist and the cartel will fall, as the firms will deviate from their cooperative behaviour for their personal gains)

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