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March 26, 2017

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The majority of the world’s diamonds comes from Country A and Country B. Suppose that the marginal cost of mining a diamond is $1,000 per diamond and that the demand schedule for diamonds is as follows: Price Quantity $ 6,000 5,500 5,000 6,500 4,000 7,500 3,000 8,500 2,000 9,500 1,000 10,500 1. If there were MANY sellers of diamonds, what would equilibrium price and quantity? Why? 2. If there were only one seller, what would be the equilibrium price and quantity? Why? 3. If Country A and Country B formed a cartel, What would be the equilibrium price and quantity? Why? Is this cartel likely to survive? Why or why not?

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