Table 17-36
The information in the table shows the total demand for water service in Takoma. Assume that there are two companies operating in Takoma. Each company that provides these services incurs an annual fixed cost of $400 and that the marginal cost of providing the service to each customer is exactly $2.00. Figures listed are for an annual service contract.

-Refer to Table 17-36. Suppose that this is a perfectly competitive market. What would total output be?
A)0
B)1000
C)1100
D)1200

Question

​Table 17-36
The information in the table shows the total demand for water service in Takoma. Assume that there are two companies operating in Takoma. Each company that provides these services incurs an annual fixed cost of $400 and that the marginal cost of providing the service to each customer is exactly $2.00. Figures listed are for an annual service contract.
​ 
-Refer to Table 17-36. Suppose that this is a perfectly competitive market. What would total output be?
A)​0 
B)​1000 
C)​1100 
D)​1200

Quizplus · Accepted Answer

In a perfectly competitive market, the firms will continue to produce until the marginal cost equals the market price. In this case, the marginal cost is given as $2.00 and the market price is $8.00 (from the table). Therefore, each company will produce until they have served 300 customers ($2400 in revenue), resulting in a total output of 600 customers served in the market. Therefore, the total output for both companies will be 1100 (600 * 2).

​Table 17-36 the Information in the Table Shows the Total Demand for Demand

Table 17-36 the Information in the Table Shows the Total Demand for Demand