- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 1. The Firm and Market Structures
- Subject 8. Oligopoly
CFA Practice Question
When firms act together to set prices, they ______
II. are violating U.S. antitrust laws.
III. are likely to make higher profits.
IV. have incentives to cheat on the agreement.
I. are called a cartel.
II. are violating U.S. antitrust laws.
III. are likely to make higher profits.
IV. have incentives to cheat on the agreement.
Correct Answer: I, II, III and IV
A cartel, illegal under U.S. law, consists of firms acting together to set prices and thus increase profit. Cartels tend to fall apart due to the incentive to cheat.
User Contributed Comments 6
| User | Comment |
|---|---|
| DannyZhou | If IV is true, why is III true? |
| SuperKnight | I think it is true because "they have incentives" which is true, and not that they actually will cheat. |
| frants54 | It is true because they are likely to make profits if they collude and keep prices high, but they will make even more profit if they cheat on the agreement and sell some of the product at a lower price to consumers with higher elasticities of demand for the product. |
| robertucla | Question not fair for non-US residents |
| sharky7 | @robertucia: common sense, it seems obvious that for USA, the kingdom of liberalism an artificial influence on prices is considered illegal |
| chesschh | Couldnt this be colluding? |