Why are cartels inherently unstable

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1. Which market assumption leads to the inability of firms to earn long-run economic profits? Explain.

2. Why do governments permit public utility monopolies (such as the municipal water department)?

3. Noting that just one or two firms might be able to produce and sell similar products at lower prices than the many firms that sell quite similar products in the US, some people argue that monopolistic competition is wasteful. Why would many consumers disagree?

4. A new lifesaving drug is under patent and sells for several hundred times the marginal cost of production. Should the government place a price ceiling at 2 times the marginal cost thus allowing many more lives to be saved? Explain why or why not.

5. Why are cartels inherently unstable?

Reference no: EM13186072

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