1. Problems and Applications Q1 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 (Diamonds) (Dollars) 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 3 per diamond and the quantity sold would be diamonds diamonds. If there were only one supplier of diamonds, the price would be 5 per diamond and the quantity sold would be Suppose Russia and South Africa form a cartel. diamonds. If the countries split the market In this case, the price would be 5 evenly, South Africa would produce per diamond and the total quantity sold would be 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 Why are cartel agreements often not successful? O Different firms experience different costs O All parties would make more money if everyone increased production. O One party has an incentive to cheat to make more profit.

1. Problems and Applications Q1 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 (Diamonds) (Dollars) 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 3 per diamond and the quantity sold would be diamonds diamonds. If there were only one supplier of diamonds, the price would be 5 per diamond and the quantity sold would be Suppose Russia and South Africa form a cartel. diamonds. If the countries split the market In this case, the price would be 5 evenly, South Africa would produce per diamond and the total quantity sold would be 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 Why are cartel agreements often not successful? O Different firms experience different costs O All parties would make more money if everyone increased production. O One party has an incentive to cheat to make more profit.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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