Question

In: Economics

A large share of the world's supply of diamonds comes from Russia and South Africa....

A large share of the world's supply of diamonds comes from Russia and South Africa. Suppose that the marginal cost of mining diamonds is $1000 per diamond, and the demand for diamonds is described by the following schedule: 

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a. if there were many suppliers of diamonds, what would be the price and quantity? 

b. If there was only one supplier of diamonds, what would be the price and quantity?

c. If Russia and South Africa formed a cartel, what would be the price and quantity, countries split the market evenly, what would be South Africa's production and profit? What would happen to South Africa's profit if it increased its production by 1000 while Russia stuck to the cartel agreement? 

d. Use your answer to part (c) to explain why cartel agreements are often not successful

Solutions

Expert Solution

answer d)

Thus cartels are unstable, bcoz each member nation or firm has profitable incentives to deviate, & the other members who still Cooperate gets worse off, & also wanted to deviate

Rahul Sunny answered 2 years ago
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