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.

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter12: More Realistic And Complex Pricing

Section: Chapter Questions

Problem 12.1IP

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