The demand for diamonds is given by PZ = 980 - 2QZ where QZ is the number
Question:
PZ = 980 - 2QZ
where QZ is the number of diamonds demanded if the price is PZ per diamond. The total cost (TCZ) of the De Beers Company (a monopolist) is given by
TCZ = 100 + 50QZ + 0.5Q2Z
where QZ is the number of diamonds produced and put on the market by the De Beers Company. Suppose the government could force De Beers to behave as if it were a perfect competitor-that is, via regulation, force the firm to price diamonds at marginal cost.
a. What is social welfare when De Beers acts as a single- price monopolist?
b. What is social welfare when De Beers acts as a perfect competitor?
c. How much does social welfare increase when De Beers moves from monopoly to competition?
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a The firm being a single monopolist produces where marginal revenue marginal cost So given that T...View the full answer
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Related Book For 
Managerial Economics Theory Applications and Cases
ISBN: 978-0393912777
8th edition
Authors: Bruce Allen, Keith Weigelt, Neil A. Doherty, Edwin Mansfield
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