Asked by Anika Desai on Jun 22, 2024
Verified
Suppose most people regard emeralds, rubies, and sapphires as close substitutes for diamonds. Then DeBeers, a large diamond company, has
A) less incentive to advertise than it would otherwise have.
B) less market power than it would otherwise have.
C) more control over the price of diamonds than it would otherwise have.
D) higher profits than it would otherwise have.
Market Power
The ability of a firm or entity to influence the price or control the availability of products or services in a market.
DeBeers
A global corporation specializing in diamond exploration, mining, retail, and trading, known for its historical monopoly over the diamond market.
- Explain the concept of a natural monopoly and illustrate with practical instances.
Verified Answer
HM
Hunter MullingsJun 25, 2024
Final Answer :
B
Explanation :
If emeralds, rubies, and sapphires are seen as close substitutes for diamonds, consumers can easily switch to these alternatives if the price of diamonds rises. This situation limits DeBeers' ability to control diamond prices and reduces its market power.
Learning Objectives
- Explain the concept of a natural monopoly and illustrate with practical instances.