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,how much profit will each of them earn?

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,how much profit will each of them earn?

Quizplus · Accepted Answer

Lisa and Mark will earn $18,000 each if they operate as a profit-maximizing monopoly in the market for water. This is because the profit-maximizing quantity for a monopoly is where marginal revenue equals marginal cost. At this quantity, the monopoly will earn a profit equal to the difference between total revenue and total cost. In this case, the total revenue is $72,000 and the total cost is $36,000, so the profit is $36,000. Since Lisa and Mark are equal partners, they will each earn half of the profit, or $18,000.

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