Table 17-1
Imagine a small town in which only two residents,Lisa and Mark,own wells that produce safe drinking water.Each week Lisa and Mark work together to decide how many gallons of water to pump.They bring the water to town and sell it at whatever price the market will bear.To keep things simple,suppose that Lisa and Mark 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 17-1.If Lisa and Mark operate as a profit-maximizing monopoly in the market for water,what price will they charge?

Question

Table 17-1
Imagine a small town in which only two residents,Lisa and Mark,own wells that produce safe drinking water.Each week Lisa and Mark work together to decide how many gallons of water to pump.They bring the water to town and sell it at whatever price the market will bear.To keep things simple,suppose that Lisa and Mark 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 17-1.If Lisa and Mark operate as a profit-maximizing monopoly in the market for water,what price will they charge?

Quizplus · Accepted Answer

A profit-maximizing monopoly will produce where marginal revenue equals marginal cost. In this case, since the marginal cost of water is zero, the monopolists will produce where marginal revenue equals zero. Looking at the total revenue schedule, we can see that this occurs at a quantity of 60 gallons, where the total revenue is $3600. Therefore, the monopolists will charge the price at which they can sell 60 gallons of water, which is $60 per gallon.

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