Assume that Pura Water,a local monopoly water utility company,is currently selling 10,000 gallons per hour at a price of $0.10 per gallon.If Pura Water wants to sell 1,000 gallons more,it will have to lower the price to $0.09 per gallon.The marginal revenue of the 10,001 is approximately

Question

Quizplus · Accepted Answer

Marginal revenue is the additional revenue earned by selling one more unit of the product.

In this case, Pura Water is facing a downward-sloping demand curve, which means that if it wants to sell 1,000 more gallons, it will have to lower the price from $0.10 to $0.09 per gallon.

So, the total revenue from selling 10,000 gallons per hour is:
TR = Price x Quantity = $0.10 x 10,000 = $1,000 per hour

And, the total revenue from selling 10,001 gallons per hour at $0.09 per gallon is:
TR = Price x Quantity = $0.09 x 10,001 = $900.09 per hour

Therefore, the marginal revenue from selling the 10,001st gallon is:
MR = Total revenue from selling 10,001 gallons - Total revenue from selling 10,000 gallons
MR = $900.09 - $1,000 = -$99.91

The negative sign indicates that selling the 10,001st gallon reduces the total revenue of Pura Water. Therefore, the best choice is B.

Assume That Pura Water,a Local Monopoly Water Utility Company,is Currently