Question

The government would attempt to enforce antitrust policy under which of the following circumstances?

A. to prevent cartels from agreeing to limit quantities and set prices

B. to prevent firms' strategic behavior that leads to tacit collusion

C. to prevent firms' interdependence that leads to tit for tat behavior

D. to prevent duopolists from engaging in product differentiation that leads to higher prices

E. to prevent excess capacity because of the unnecessary waste that it creates

Answer 1

Answer

Option A

A. to prevent cartels from agreeing to limit quantities and set prices

Government stops cartel in the market, A cartel reduces output and increases the price but preventing it increases competition and welfare in the economy. A government does not stop the interdependence, product differentiation, strategic behavior, and excess capacity. The laws govern competition in the market and prevent firms from reducing competition.