Explore BrainMass

# Making a cartel

Not what you're looking for? Search our solutions OR ask your own Custom question.

This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

The marginal cost of mining a diamond is a constant \$1,000. The following schedule shows demand for diamonds that are mined in South Africa and Russia.

Price (\$) Quantity
8,000 5,000
7,000 6,000
6,000 7,000
5,000 8,000
4,000 9,000
3,000 10,000
2,000 11,000
1,000 12,000

a. If Russia and South Africa formed a cartel, how many diamonds would each produce and what price would they sell at?

b. If only South Africa breaks the cartel agreement and increases production by 1,000 diamonds, what is South Africa's profit? What is Russia's profit?

c. If Russia retaliates and increases production by 1,000 units, calculate each country's profit?

d. Does South Africa have an incentive to increase production? Why or Why not?

https://brainmass.com/economics/production/making-cartel-44580

#### Solution Preview

The marginal cost of mining a diamond is a constant \$1,000. The following schedule shows demand for diamonds that are mined in South Africa and Russia.

Price (\$) Quantity
8,000 5,000
7,000 6,000
6,000 7,000
5,000 8,000
4,000 9,000
3,000 10,000
2,000 11,000
1,000 12,000

a. If Russia and South Africa formed a cartel, how many diamonds would each produce and what price would they sell at?
...

#### Solution Summary

The marginal cost of mining a diamond is examined.

\$2.49