Assignment: 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
Required to do:
Question 1: If there were many sellers of diamonds, what would equilibrium price and quantity? Why?
Question 2: If there were only one seller, what would be the equilibrium price and quantity? Why?
Question 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?