1.12. Assume De Beers is the sole producer of diamonds. When it wants to sell more diamonds, it must lower its price in order to induce consumers to buy more. Furthermore, each additional diamond that is produced costs more than the previous one due to the difficulty of mining for diamonds. De Beers’s total benefit schedule is given in the accompanying table, along with its total cost schedule.

a. Draw the marginal cost curve and the marginal benefit curve and, from your diagram, graphically derive the optimal quantity of diamonds to produce.

b. Calculate the total net gain to De Beers from producing each quantity of diamonds. Which quantity gives De Beers the highest total net gain?

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Quantity of diamonds 0 Total benefit Total cost $0 $0 12 1,000 50 1,900 100 3 2,700 200 456 3,400 400 4,000 800 4,500 1,500 7 4,900 2,500 8 5,200 3,800