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 $2,000 per diamond, and the demand for diamonds is described by the following schedule:

Price Quantity

(Dollars) (Diamonds)

8,000 2,000

7,000 3,000

6,000 4,000

5,000 5,000

4,000 6,000

3,000 7,000

2,000 8,000

1,000 9,000

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.

______ One party has an incentive to cheat to make more profit.

______ All parties would make more money if everyone increased production.