Suppose that De Beers is a single-price monopolist in the market for diamonds. De Beers

Chapter 0, Problem 14

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Suppose that De Beers is a single-price monopolist in the market for diamonds. De Beers has five potential customers: Raquel, Jackie, Joan, Mia, and Sophia. Each of these customers will buy at most one diamondand only if the price is just equal to, or lower than, her willingness to pay. Raquels willingness to pay is $400; Jackies, $300; Joans, $200; Mias, $100; and Sophias, $0. De Beerss marginal cost per diamond is $100. This leads to the demand schedule for diamonds shown in the accompanying table. a. Calculate De Beerss total revenue and its marginal revenue. From your calculation, draw the demand curve and the marginal revenue curve. b.Explain why De Beers faces a downward-sloping demand curve. c. Explain why the marginal revenue from an additional diamondsale is less than the price of the diamond.d. Suppose De Beers currently charges $200 for its diamonds.If it lowers the price to $100, how large is the price effect?How large is the quantity effect?e. Add the marginal cost curve to your diagram from part a,and determine which quantity maximizes the companysprofit and which price De Beers will charge.