Suppose most people regard emeralds, rubies, and sapphires as close substitutes for diamonds. Then De Beers, 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.
Answer (2)
De Beers will have less market power due to the competition from emeralds, rubies, and sapphires being considered close substitutes for diamonds. This increased competition limits their ability to set high prices and may require more advertising to attract consumers. Therefore, the correct answer is B) less market power than it would otherwise have.
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If emeralds, rubies, and sapphires are seen as close substitutes for diamonds, De Beers will have less market power due to the increased competition. This leads to the correct answer being B) less market power than it would otherwise have, as consumer choice limits De Beers' pricing power. ;
