23.2 Everyday and Business Application: Diamonds Are a Girl’s Best Friend: Historically, most of the diamond mines in the world have been controlled by a few companies and governments. Through clever marketing by diamond producers, many consumers have furthermore become convinced that “diamonds are a girl’s best friend” because “diamonds are forever.” In fact, the claim is that the only way to show true love is to give a diamond engagement ring that costs the equivalent of three months of salary. (We will refer to this throughout the exercise as “the claim.”)

A. For purposes of this question, assume that diamonds are only used for engagement rings, that there is no secondary market for engagement rings, and that the diamond industry acts as a single monopoly.

a. Let x be the size of diamonds (in karats). Draw a demand curve for x (with the price per karat on the vertical axis) and make the shape of this demand curve roughly consistent with the claim at the beginning of the question.