Economics School Problem?
Ok...here's another. I feel so stupid because I don't even know where to begin. Any websites you can recommend?
I need help with the following problem: 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?
Answer:
1)The first thing to do is to multiply each quantity by the corresponding price.2) then you have to multiply 1000 (the marginal production costs) times each of the quantities. 3) Then subtract the result of step two from the result in step one for each of the quantities and prices.
This gives you the most profit at a price of $7000 and a quantity of 6000.
A.
They could split it by what ever ratio they wished but they would make the most money with a price of $7000 and a quantity of 6000. This would yield them a profit of 36,000,000
I assume they would split this in half.
B.
Then if one of them increases production by 1000 diamonds, they are now producing 7000 diamonds at a price of $6000. but since Russia is still producing only 3000 (assuming a 50/50 split) their profit has decreased to 15,000,000 each. While Russia still is making their 15,000,000of that profit plus the extra one thousand diamonds that they are selling at a price of $6000 so they have revenue of 6,000,000 from that minus their expenses of 1,000,000 they are making an extra profit of 5,000,000. But because the total price of the diamond went down they are only making 15million on the original share of the 6000 diamonds that they would have made 18million on had there not been a price decrease. Therefore by increasing their production they have only made an extra 2 million ((18-(15+5)). So two million is their extra profit.
The next question is just a continuation of what happened in the last one...try to work through it step by step and think it through to understand the logic behind what's going on. I hope this helps.
a. multiply two numbers in each row, find the max
that's your price, and they should slit the output somehow, maybe 50:50
b. find new quantity, get new price and compute.
Profit = (Price - cost)*Quantity
c. same as b.
d. depends on how profits in case a. and c. compare.
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I need help with the following problem: 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?
Answer:
1)The first thing to do is to multiply each quantity by the corresponding price.2) then you have to multiply 1000 (the marginal production costs) times each of the quantities. 3) Then subtract the result of step two from the result in step one for each of the quantities and prices.
This gives you the most profit at a price of $7000 and a quantity of 6000.
A.
They could split it by what ever ratio they wished but they would make the most money with a price of $7000 and a quantity of 6000. This would yield them a profit of 36,000,000
I assume they would split this in half.
B.
Then if one of them increases production by 1000 diamonds, they are now producing 7000 diamonds at a price of $6000. but since Russia is still producing only 3000 (assuming a 50/50 split) their profit has decreased to 15,000,000 each. While Russia still is making their 15,000,000of that profit plus the extra one thousand diamonds that they are selling at a price of $6000 so they have revenue of 6,000,000 from that minus their expenses of 1,000,000 they are making an extra profit of 5,000,000. But because the total price of the diamond went down they are only making 15million on the original share of the 6000 diamonds that they would have made 18million on had there not been a price decrease. Therefore by increasing their production they have only made an extra 2 million ((18-(15+5)). So two million is their extra profit.
The next question is just a continuation of what happened in the last one...try to work through it step by step and think it through to understand the logic behind what's going on. I hope this helps.
a. multiply two numbers in each row, find the max
that's your price, and they should slit the output somehow, maybe 50:50
b. find new quantity, get new price and compute.
Profit = (Price - cost)*Quantity
c. same as b.
d. depends on how profits in case a. and c. compare.
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