Decision Making by Individuals and Firms — End of Chapter Problem 10. Assume De Beers is the sole producer of diamonds. When it wants to sell more diamonds, it must lower its price in order to induce...

Decision Making by Individuals and Firms — End of Chapter Problem

10.
Assume De Beers is the sole producer of diamonds. When it wants to sell more diamonds, it must lower its price in order to induce shoppers to buy more. Furthermore, each additional diamond that is produced costs more than the previous one due to the difficulty of mining for diamonds. De Beers’s total benefit schedule is given in the accompanying table, along with its total cost schedule.

Quantity of diamonds	Total benefit	Total cost
0	$0	$0
1	1,100	50
2	1,900	100
3	2,700	200
4	3,400	400
5	4,000	800
6	4,500	1,500
7	4,900	2,500
8	5,200	3,800

a.
What is the optimal quantity of diamonds to produce?

Optimal output:

diamonds

b.
Calculate the total profit to De Beers from producing each quantity of diamonds. Which quantity gives De Beers the highest total profit?

Profit-maximizing output:

diamonds

Jun 07, 2022

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Decision Making by Individuals and Firms — End of Chapter Problem 10. Assume De Beers is the sole producer of diamonds. When it wants to sell more diamonds, it must lower its price in order to induce...

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