Table 17-1
Imagine a small town in which only two residents,Abby and Brad,own wells that produce safe drinking water.Each week Abby and Brad work together to decide how many gallons of water to pump.They bring water to town and sell it at whatever price the market will bear.To keep things simple,suppose that Abby and Brad can pump as much water as they want without cost so that the marginal cost is zero.The weekly town demand schedule and total revenue schedule for water is shown in the table below:

-Refer to Table 17-1.Suppose that Abby and Brad work together in order to operate as a profit-maximizing monopolist.How many gallons of water will be produced and sold?

Question

Table 17-1
Imagine a small town in which only two residents,Abby and Brad,own wells that produce safe drinking water.Each week Abby and Brad work together to decide how many gallons of water to pump.They bring water to town and sell it at whatever price the market will bear.To keep things simple,suppose that Abby and Brad can pump as much water as they want without cost so that the marginal cost is zero.The weekly town demand schedule and total revenue schedule for water is shown in the table below:
 
-Refer to Table 17-1.Suppose that Abby and Brad work together in order to operate as a profit-maximizing monopolist.How many gallons of water will be produced and sold?

Quizplus · Accepted Answer

To find the profit-maximizing quantity, we need to look at the total revenue and total cost. Since the marginal cost is zero, the total cost will also be zero. The total revenue is maximized when marginal revenue equals zero. In this case, that occurs when 6 gallons of water are sold. At this quantity, the price is $2.50 per gallon, which is the highest price the market will bear. Therefore, operating as a profit-maximizing monopolist, Abby and Brad will produce and sell 6 gallons of water.

Table 17-1 Imagine a Small Town in Which Only Two Residents,Abby and Residents,Abby