If all firms in an industry can successfully collude and form a cartel, that industry becomes very similar to:

a. a perfectly competitive industry.

b. an oligopoly industry.

c. a monopoly industry.

d. a monopolistically competitive industry.

e. a duopoly industry.

The answer is C.

Collusion is the process of setting prices or quantities by rival firms. When this is successfully done, economists say that the firms have formed a cartel. The cartel chooses a quantity or price that is similar to a single firm that is a monopoly. This is why collusive behavior is illegal in countries that have anti-trust laws. The rival firms are charging a higher price than the competitive outcome and reducing the economic efficiency in the market. Cartels are often difficult to hold together because both firms realize they can earn more profit by cheating on the deal and increasing their output.