Microeconomics help please!! 1.South Africa and Russia control a large portion o

Question

Microeconomics help please!!

1.South Africa and Russia control a large portion of the world production of diamonds. Suppose the marginal cost of mining diamonds is constant at $1,000 per carat weight, and that demand is as follows:

$8,000

If there were many suppliers of diamonds, the price and quantity would be:

D.P = $2000, Q = 10,000

2. South Africa and Russia control a large portion of the world production of diamonds. Suppose the marginal cost of mining diamonds is constant at $1,000 per carat weight, and that demand is as follows:

$8,000

Say South Africa and Russia form a cartel with regards to quantity supplied, with the goal of maximizing total profit. Assuming both parties follow the cartel agreement, the cartel price and quantity would be:

Price Quantity (in carats)

$8,000

    4,000 $7,000     5,500 $6,000     6,000 $5,000     7,000 $4,000     8,000 $3,000     9,000 $2,000     10,000 $1,000     11,000 Microeconomics help please!! 1.South Africa and Russia control a large portion of the world production of diamonds. Suppose the marginal cost of mining diamonds is constant at $1,000 per carat weight, and that demand is as follows: Price Quantity (in carats) $8,000 4,000 $7,000 5,500 $6,000 6,000 $5,000 7,000 $4,000 8,000 $3,000 9,000 $2,000 10,000 $1,000 11,000 If there were many suppliers of diamonds, the price and quantity would be: A.P = $1,000, Q = 11,000 B.P = $8,000, Q = 4,000 C.P = $6,000, Q =6,000 D.P = $2000, Q = 10,000 2. South Africa and Russia control a large portion of the world production of diamonds. Suppose the marginal cost of mining diamonds is constant at $1,000 per carat weight, and that demand is as follows: Price Quantity (in carats) $8,000 4,000 $7,000 5,500 $6,000 6,000 $5,000 7,000 $4,000 8,000 $3,000 9,000 $2,000 10,000 $1,000 11,000 Say South Africa and Russia form a cartel with regards to quantity supplied, with the goal of maximizing total profit. Assuming both parties follow the cartel agreement, the cartel price and quantity would be: A. P = $5,000, Q = 7,000 B. P = $7,000, Q =5,500 C. P = $8,000, Q = 4,000 D.P = $1,000, Q = 11,000

Explanation / Answer

The objective here is to maximise the Profit

Revenue = Price* Quantity

Cost = Quantity * Marginal Cost

Profit = Revenue - Cost

1) A) Profit = 1000*11000 - 11000*1000 = $ 0

B) Profit = 4000*8000 - 4000*1000 = $ 28000000

C) Profit = 6000*6000 -6000*1000 = $ 30000000

D) Profit = 2000*10000 - 1000*10000 = $ 10000000

Since C>B>D>A Answer: Option C

2) A) Profit = 5000*7000 - 1000*7000 = $ 28000000

   B) Profit = 7000*5500 - 1000*5500 = $ 33000000

   C) Profit = 8000*4000 - 1000*4000 = $ 28000000

   D) Profit = 1000*11000 - 1000*11000 = $ 0

B>A=C>D Answer: Option B

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