1. A large share of the world supply of diamonds comes from Russia and South Africa. Suppose that the mar- ginal cost of mining diamonds is constant at $1,000 per diamond and the demand for diamonds is described by the following schedule: Price $8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 Quantity 5,000 diamonds 6,000 7,000 8,000 9,000 10,000 11,000 12,000 a. If there were many suppliers of diamonds, what would be the price and quantity? b. If there were only one supplier of diamonds, what would be the price and quantity? c. If Russia and South Africa formed a cartel, what would be the price and quantity? If the countries split the market evenly, what would be South Africa's production and profit? What would hap- pen to South Africa's profit if it increased its pro- duction by 1,000 while Russia stuck to the cartel agreement? d. Use your answers to part (c) to explain why cartel agreements are often not successful.

1. A large share of the world supply of diamonds comes from Russia and South Africa. Suppose that the mar- ginal cost of mining diamonds is constant at $1,000 per diamond and the demand for diamonds is described by the following schedule: Price $8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 Quantity 5,000 diamonds 6,000 7,000 8,000 9,000 10,000 11,000 12,000 a. If there were many suppliers of diamonds, what would be the price and quantity? b. If there were only one supplier of diamonds, what would be the price and quantity? c. If Russia and South Africa formed a cartel, what would be the price and quantity? If the countries split the market evenly, what would be South Africa's production and profit? What would hap- pen to South Africa's profit if it increased its pro- duction by 1,000 while Russia stuck to the cartel agreement? d. Use your answers to part (c) to explain why cartel agreements are often not successful.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter9: Monopoly

Section: Chapter Questions

Problem 31P: Return to Figure 9.2. Suppose P0 is 10 and P1 is 11. Suppose a new firm with the same LRAC curve as...

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