Consider the accompanying demand schedule for diamonds. The marginal cost of producing diamonds is constant at $100. There is no fixed cost.

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

a. If De Beers charges $300 for a diamond, calculate total consumer surplus by summing individual consumer surpluses. How large is producer surplus?
b. What is the perfectly competitive price? What quantity will be sold in this perfectly competitive market?
c. At the competitive price and quantity. how large is total consumer surplus? How large is producer surplus?
d. Compare your answer to part c to your answer to part a. How large is the deadweight loss associated with monopoly in this case?

Self-interest achieve society’s economic goals because producers know which goods consumers want the most. as consumers and producers exercise their freedom to act in their own self-interest, markets will produce the desired goods at the lowest possible cost. consumers and producers both operate based on society’s economic goals. consumers know which goods can be produced at the lowest cost. there is a wide variety of desired goods and services in a market system because producers determine what to produce. consumers change their minds frequently. there is always a need to produce something new and improved. individual wants are diverse. what is produced is ultimately determined by consumers, because if the goods offered are not what consumers want, consumers will not buy them. producers, because they are driven by profits. producers, because they determine what to produce. consumers, because they participate in marketing surveys.