Coffee Case Study Example | Topics and Well Written Essays - 1250 words

Coffee - Case Study Example The quantity of output that is likely to be produced in a cartel depends on the strength and stability of the cartel. For instance, if the cartel decides to act as a monopoly then it has absolute authority over all its members. The following graph shows the output and price in case of a cartel arrangement (Dwivedi, 2009). The summation of individual marginal cost curves provides the marginal cost curve for the industry as a whole and the intersection of the marginal revenue and cost curves determines the equilibrium level of output and price. Once the industry has been determined then the individual firms ascertains their own level of output by matching their own marginal cost curves to the profit-maximizing level. Cartels have been banned in a number of developed countries like the U.S.A. on account of the negative impacts it has on the consumers (Marshall and Marx, 2012). In many cases it has been observed that the cartel members hide prices, charge unreasonable price and artificially constrict output and all of these reduces the welfare of the consumer. Consumers can also lose confidence in the business as cartels have been largely associated with the negative sentiments. In most of the cases the business enterprises which are not a part of the cartel are often eliminated from the business and this in turn affects the overall effectiveness of the economy as a whole. Formation of cartels has been associated with the reduction of the innovation and economic efficiency. Governments and economists of various countries thinks that cartels are ineffective because unproductive members take refuge to the cartels and are not bothered to improve their performance (Grossman, 2004). It has also been fo und that cartel members often discourage the entry of new entrants into the market and this in turn restricts the chances of economic growth and job prospects for many. In many cases the cartels have been held responsible