Microeconomics Problem - Help Would Be Very Appreciated! See Additional Details for full question, thank you.?

Question

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 $1,000 per diamond, and the demand for diamonds is described by the following schedule:

Price Quanity

$8,000 5,000 diamonds

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 there were many suppliers of diamonds, what would be the price and quantity?

(b)If there were only one supplier of diamonds, what would be the price and quantity?

(c)If Russia & South Africa formed a cartel, what would be the P&Q? If the countries split the market even, what would be South Africa's production and profit? What would happen to South Africa's profit if it increased prod. to 1,000 and Russia did not?

Answer 1

....P..........Q............TR............. TC.............. Profit

8'000....5'000....40'000'000....... 5'000'000..... 35'000'000

7'000....6'000....42'000'000....... 6'000'000..... 36'000'000

6'000....7'000....42'000'000....... 7'000'000..... 35'000'000

5'000....8'000....40'000'000....... 8'000'000..... 32'000'000

4'000....9'000....36'000'000....... 9'000'000..... 27'000'000

3'000...10'000...30'000'000..... 10'000'000..... 20'000'000

2'000...11'000...22'000'000..... 11'000'000..... 11'000'000

1'000...12'000...12'000'000..... 12'000'000..... 00'000'000

a)

Profit=0

Profit=TR-TC

TR-TC=0

TR=TC

12'000'000=12'000'000

P=1'000 Q=12'000

b)

Profit=Max

Profit=36'000'000

P=7'000 Q=6'000

c)

Profit=Max

Profit=36'000'000

P=7'000 Q=6'000

Profit(SA)=18'000'000

Q(SA)=3'000

P(SA)=7'000

Profit(Russia)=18'000'000

Q(Russia)=3'000

P(Russia)=7'000

After SA increase Q=+1'000

Profit(SA)=20'000'000

Q(SA)=4'000

P(SA)=6'000

Profit(Russia)=15'000'000

Q(Russia)=3'000

P(Russia)=6'000

ΔQ(Rus)=0

ΔQ(SA)=+1'000

ΔQ(All)=+1'000

ΔP(All)=-1'000

ΔProfit(Rus)= -3'000'000

ΔProfit(SA)= +2'000'000

ΔProfit(All)= -1'000'000