Oligopolies and CartelsA 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:PriceQuantity(Dollars)(Diamonds)8,0005,0007,0006,0006,0007,0005,0008,0004,0009,0003,00010,0002,00011,0001,00012,000 If there were many suppliers of diamonds, the price would be $per diamond and the quantity sold would bediamonds.If there were only one supplier of diamonds, the price would be Sper diamond and the quantity sold would bediamonds.Suppose Russia and South Africa form a cartel.In this case, the price would be sper diamond and the total quantity sold would bediamonds. If the countries split the marketevenly, South Africa would producediamonds and earn a profit of SIf South Africa increased its production by 1,000 diamonds while Russia stuck to the cartel agreement, South Africa's profit wouldtoWhy are cartel agreements often not successful?O All parties would make more money if everyone increased production.O Different firms experience different costs.O One party has an incentive to cheat to make more profit.

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ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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 S
per diamond and the quantity sold would be
diamonds.
Suppose Russia and South Africa form a cartel.
In this case, the price would be s
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 S
If South Africa increased its production by 1,000 diamonds while Russia stuck to the cartel agreement, South Africa's profit would
to
Why are cartel agreements often not successful?
O All parties would make more money if everyone increased production.
O Different firms experience different costs.
O One party has an incentive to cheat to make more profit.

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