Suppose that De Beers is a single-price monopolist in the diamond market. De Beers has five potential customers: Raquel, Jackie, Jake, Elijah, and Jordan. Each of these customers will buy at most one diamond — and only if the price is just equal to, or lower than, their willingness to pay. Raquel’s willingness to pay is $400; Jackie’s, $300; Jake’s, $200; Elijah’s, $100; and Jordan’s, $0. De Beers’s marginal cost per diamond is $100. The result is a demand schedule for diamonds as follows:Price of diamondQuantity of diamonds demanded$5000400130022003100405Calculate De Beers’s total revenue and its marginal revenue. From your calculation, draw the demand curve and the marginal revenue curve.Explain why De Beers faces a downward-sloping demand curve and why the marginal revenue from an additional diamond sale is less than the price of the diamond.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?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.

Total Revenue = Price * Quantity Marginal Revenue = Change in the total revenue due to selling an…

Answered: Suppose that De Beers is a single-price…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose that De Beers is a single-price monopolist in the diamond market. De Beers has five potential customers: Raquel, Jackie, Jake, Elijah, and Jordan. Each of these customers will buy at most one diamond — and only if the price is just equal to, or lower than, their willingness to pay. Raquel’s willingness to pay is $400; Jackie’s, $300; Jake’s, $200; Elijah’s, $100; and Jordan’s, $0. De Beers’s marginal cost per diamond is $100. The result is a demand schedule for diamonds as follows:

Price of diamond Quantity of diamonds demanded

$500 0

400 1

300 2

200 3

100 4

0 5
1. Calculate De Beers’s total revenue and its marginal revenue. From your calculation, draw the demand curve and the marginal revenue curve.
2. Explain why De Beers faces a downward-sloping demand curve and why the marginal revenue from an additional diamond sale is less than the price of the diamond.
3. 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?
4. 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.

Price of diamond	Quantity of diamonds demanded
$500	0
400	1
300	2
200	3
100	4
0	5

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