Question 1

Suppose that the DeBeers company faces very little competition from other firms in the wholesale diamond market. Why isn't the price of wholesale diamonds $10,000 per carat?
A)because the government would not allow such a high price
B)because stockholders would not allow such a high price
C)because the company would sell so few diamonds that it would earn higher profits by selling at a lower price
D)All of the above are correct.

Accepted Answer

Even if DeBeers faces little competition, they still have to consider demand and the willingness of buyers to pay a certain price. If they set the price too high, they may sell very few diamonds and earn lower profits compared to selling at a lower price with higher sales volume. The other options are incorrect because the government and stockholders do not have direct control over the pricing decisions of DeBeers.

Question 2

Microsoft faces very little competition from other firms for its Windows software. Why isn't the price of the software $1,000 per copy?
A)because the government would not allow such a high price
B)because stockholders would not allow such a high price
C)because the company would sell so few copies that they would earn higher profits by selling at a lower price
D)All of the above are correct.

Accepted Answer

Microsoft wants to maximize its profits, so it needs to find the price that will allow it to sell the most copies. If the price were set at $1,000 per copy, very few people would be willing to pay that price, and the company would sell very few copies, leading to lower profits overall. By setting a lower price point, Microsoft can sell more copies and make up for the lower price with higher overall sales. Also, the government and stockholders may have some influence, but ultimately it is the market demand that determines the price.

Quiz 15: Monopoly

Suppose that the DeBeers company faces very little competition from other firms in the wholesale diamond market. Why isn't the price of wholesale diamonds $10,000 per carat?

Microsoft faces very little competition from other firms for its Windows software. Why isn't the price of the software $1,000 per copy?