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

Question

Quizplus · Accepted Answer

Even though DeBeers has very little competition in the wholesale diamond market, they still have to consider the demand and the price elasticity of their product. Pricing their diamonds at $10,000 per carat would likely result in very few sales, as demand for diamonds is not completely unaffected by price. By selling at a lower price, they can sell more diamonds and make a higher profit overall. The government and stockholders may have some influence on their pricing decisions, but ultimately it comes down to maximizing profits through balancing price and demand.

The DeBeers Company Faces Very Little Competition from Other Firms