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 Quantity $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 and South Africa formed a cartel, what would be the price and quantity? If the countries split the market evenly, what would be South Africas production and profit? What would happen to South Africas profit if it increased its production by 1,000 while Russia stuck to the cartel agreement? d. Use your answers to part (c) to explain why cartel agreements are often not successful.
BUS 215 CH 5; ostVolumeProfit Relationships I. Costvolumeprofit (CVP) analysis helps managers make many important decisions such as what products and services to offer, what prices to charge, what marketing strategy to use, and what cost structure to maintain. Its primary purpose is to estimate how profits are affected by the following five factors: 1. Selling prices. 2. Sales volume. 3. Unit variable costs. 4. Total fixed costs. 5. Mix of products sold. ● To simplify CVP calculations, managers typically adopt the following assumptions with respect to these factors ○ Selling price is constant. The price of a p