Question

The market for fertilizer is perfectly competitive. Firms in the market are producing output, but are currently making economic losses.

4 ) Fill in the following blanks with U = go up, S = stay the same, D = go down.

In the long run, the price of fertilizer will ......... and the total quantity produced will.......... . In addition, the amount of fertilizer produced by the average firm in the market will ............

5 )

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 $1000 per diamond, and the worldwide demand for diamonds is described by the following schedule:

Price	Quantity
$8000	5000 diamonds
7000	6000
6000	7000
5000	8000
4000	9000
3000	10000
2000	11000
1000	12000

If there were many, many firms operating in the market, the total output of diamonds would be ............ 000 diamonds. If there were one, profit-maximizing monopoly firm, the total output of diamonds would be .................... 000 diamonds.

Suppose Russia and South Africa (as nations) are a duopoly in the diamond market. If they were to form a cartel, where they split output of diamonds equally, each would earn ...................... $000000 in profit. If, however, Russia were to "cheat" and produce 1000 more diamonds than the cartel agreement, Russia's total profit would then be ...................... $000000.

**Note that I have given you the zeroes in each answer to help avoid typos.**

Answer 1

4. U = GO UP

U = GO UP

U = GO UP

5.Profit maximizing Monopoly.  

MC of mining Diamonds = $1000 per Diamond

Price	Quantity
$8000	5000
7000	6000
6000	7000
5000	8000
4000	9000
3000	10000
2000	11000
1000	12000

The Total Output would be 68000

From the Table, we get the Demand Function as follows

=> Q = 13000 - P

=>P = 13000 - Q

Therefore, TR = PQ = 13000Q -Q²

MR = 13000 - 2Q

In Monopoly market at equilibrium, MR = MC

13000 - 2Q = 1000

Q = 6000

Duopoly Market

Total Output is 6000 Diamonds.

If they divide among them equally, they each get 3000 Diamonds

Each Country's Profit = TR- TC= 39000000 - 9000000 = $30000000.

If Russia cheats and produces 1000 more diamonds, then

Russia's profit from Cartel + own profit for producing 1000 Diamonds

$30000000 + $12000000 = $42000000