Table 16-4
Imagine a small town in which only two residents, Tony and Jill, own wells that produce safe drinking water. Each week Tony and Jill work together to decide how many gallons of water to pump, to bring the water to town, and to sell it at whatever price the market will bear. To keep things simple, suppose that Tony and Jill can pump as much water as they want without cost so that the marginal cost of water equals zero.
The weekly town demand schedule and total revenue schedule for water is shown in the table below.

-Refer to Table 16-4.Since Tony and Jill operate as a profit-maximizing monopoly in the market for water,what price will they charge for water?
A)$2
B)$4
C)$6
D)$7

Question

Table 16-4
Imagine a small town in which only two residents, Tony and Jill, own wells that produce safe drinking water. Each week Tony and Jill work together to decide how many gallons of water to pump, to bring the water to town, and to sell it at whatever price the market will bear. To keep things simple, suppose that Tony and Jill can pump as much water as they want without cost so that the marginal cost of water equals zero.
The weekly town demand schedule and total revenue schedule for water is shown in the table below.
 
-Refer to Table 16-4.Since Tony and Jill operate as a profit-maximizing monopoly in the market for water,what price will they charge for water?
A)$2 
B)$4 
C)$6 
D)$7

Quizplus · Accepted Answer

To determine the price that Tony and Jill will charge for water, we need to find the quantity that maximizes their total revenue. Looking at the table, we see that the total revenue is highest at a quantity of 4 gallons (where it is $24). At any other quantity (either less or more), the total revenue would be lower. Therefore, Tony and Jill will charge the price that corresponds to a quantity of 4 gallons, which is $6.

Table 16-4 Imagine a Small Town in Which Only Two Residents, Tony