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 $2,000 per diamond, and the demand for diamonds is described by the following schedule: Price Quantity (Dollars) (Diamonds) 8,000 2,000 7,000 3,000 6,000 4,000 5,000 5,000 4,000 6,000 3,000 7,000 2,000 8,000 1,000 9,000 If there were many suppliers of diamonds, the price would be$__ 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 (DECREASE OR INCREASE) to $_______. Why are cartel agreements often not successful? (A) All parties would make more money if everyone increased production. (B) Different firms experience different costs. (C) One party has an incentive to cheat to make more profit.

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter9: Monopoly

Section: Chapter Questions

Problem 6.9P

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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 $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 (DECREASE OR INCREASE) to $___________.

Why are cartel agreements often not successful?

(A) All parties would make more money if everyone increased production.

(B) Different firms experience different costs.

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