De Beers has five potential customers: Raquel, Jackie, Joan, Mia, and Sophia. Each of these customers...
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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 dia- mond is $100. This leads to the demand schedule for diamonds shown in the accom- panying table. Price of diamond Quantity of diamonds demanded $500 400 1 300 2 200 100 5 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 cffect? 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. 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 dia- mond is $100. This leads to the demand schedule for diamonds shown in the accom- panying table. Price of diamond Quantity of diamonds demanded $500 400 1 300 2 200 100 5 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 cffect? 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.
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a TR P Q MR i TR i TR i1 Q i Q i1 Price Quantity TR MR 500 0 0 400 1 400 400 300 2 ... View the full answer
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