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.As long as Tony and Jill operate as a profit-maximizing monopoly,what will their weekly revenue equal?
A)$200
B)$270
C)$350
D)$360

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.As long as Tony and Jill operate as a profit-maximizing monopoly,what will their weekly revenue equal?
A)$200 
B)$270 
C)$350 
D)$360

Quizplus · Accepted Answer

To maximize their profits, Tony and Jill will choose the quantity of water to sell where marginal revenue equals marginal cost. Since the marginal cost of water is zero, their marginal revenue equals the price. Looking at the table, we see that the largest quantity they can sell while still charging a positive price is 4 gallons at a price of $90 per gallon. Therefore, their weekly revenue will be:

4 gallons x $90/gallon + 2 gallons x $60/gallon = $360

So, the correct answer is D.

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