Question 3:

De Beers is a single-price monopolist in the market for diamonds. It supplies most of the diamonds in the market and own most of the diamond mines around the world. Suppose that De Beers costs and revenues are illustrated in Figure 2 below.

B. Identify the source of De Beers market power and explain why it faces a downward-sloping demand curve. [1.5 Marks]

C. Explain why De Beers marginal revenue from selling an additional diamond is less than the price of the diamond. [1 Mark]

$220 MC $200 $180 $160 $140 Cost/Revenue ($) $120 $100 AC $80 $60 Demand $40 $20 MR 0 30 60 90 120 150 180 210