Question
4. Oligopolies and Cartels A large share of the world supply of diamonds comes from Russia and South Africa. Suppose that the marginal cost of
4. Oligopolies and Cartels
A large share of the world supply of diamonds comes from Russia and South Africa. Suppose that the marginal cost of mining diamonds is constant at $1,000 per diamond, and the demand for diamonds is described by the following schedule:
Price | Quantity |
---|---|
(Dollars) | (Diamonds) |
8,000 | 5,000 |
7,000 | 6,000 |
6,000 | 7,000 |
5,000 | 8,000 |
4,000 | 9,000 |
3,000 | 10,000 |
2,000 | 11,000 |
1,000 | 12,000 |
If there were many suppliers of diamonds, the price would be _____ per diamond and the quantity sold would be _____
diamonds.
If there were only one supplier of diamonds, the price would be ______________ per diamond and the quantity sold would be _____ diamonds.
Suppose Russia and South Africa form a cartel.
In this case, the price would be _____ per diamond and the total quantity sold would be _______ diamonds. If the countries split the market evenly, South Africa would produce ___________ diamonds and earn a profit of ____________.
.
If South Africa increased its production by 1,000 diamonds while Russia stuck to the cartel agreement, South Africa's profit would (increase, decrease) to _____.
.
Why are cartel agreements often not successful?
- Different firms experience different costs.
- All parties would make more money if everyone increased production.
- One party has an incentive to cheat to make more profit.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started