Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

6. Suppose that De Beers is a monopolist in the market for diamonds. De Beers has five potential customers: Raquel, Jackie, Joan, Mia, and Sophia.

image text in transcribed
6. Suppose that De Beers is a 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 diamond-and only if the price is just equal to, or lower than, her willingness to pay. Raquel's willingness to pay is $400; Jackie's, $300; Joan's, $200; Mia's, $100; and Sophia's, $0. De Beers's marginal cost per diamond is $100. This leads to the demand schedule for diamonds shown in the accompanying table. Price of Quantity of diamonds diamond demanded $500 0 400 300 200 3 100 4 0 UT a. Calculate De Beers's total revenue and its marginal revenue. From your calcula- tion, 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 diamond sale 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 De Beers's profit and which price De Beers will charge

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Microeconomics

Authors: Paul Krugman, Robin Wells

4th Edition

1464143870, 9781464143878

More Books

Students also viewed these Economics questions