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One function of the first paragraph is to

Correct!

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The first paragraph tells us that De Beers faced a problem of fluctuating diamond prices and that the solution was related to advertising. The second paragraph describes the advertising campaign that solved the problem.

Careful reading of the question stem is required here: One function of the first paragraph is to
Not "The function", but rather One function. Introducing the problem is indeed a function of the first paragraph - it's not the only one, but it is one function.

Incorrect.

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Although the first paragraph mentions that De Beers used advertising successfully, the details of its advertising strategy are described in the second paragraph.

Incorrect.

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The Initial Reading reveals that the purpose of the first paragraph is to use De Beers as an example of a successful business, not to recount its history.

Incorrect.

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The first paragraph introduces De Beers as an example of a successful business. Nowhere does the author criticize the company or its advertising strategy.

Incorrect.

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The first paragraph is indeed the basis of the second. However, the passage is descriptive and does not make any arguments.

present the basis for an argument made in the second paragraph
criticize De Beers for its advertising strategy
chronicle important events in the history of the De Beers diamond cartel