Table 16-3
Imagine a small town in which only two residents, Robert and John, own wells that produce water for safe drinking. Each Saturday, Robert and John work together to decide how many litres of water to pump, bring the water to town, and sell it at whatever price the market will bear. To keep things simple, suppose that Robert and John can pump as much water as they want without cost; therefore, the marginal cost of water equals zero.
The weekly town demand schedule and total revenue schedule for water are shown in the table.

-Refer to Table 16-3. As long as Robert and John operate as a profit-maximising monopoly, what will their weekly revenue be?
A) $270
B) $320
C) $350
D) $360

Question

Table 16-3
Imagine a small town in which only two residents, Robert and John, own wells that produce water for safe drinking. Each Saturday, Robert and John work together to decide how many litres of water to pump, bring the water to town, and sell it at whatever price the market will bear. To keep things simple, suppose that Robert and John can pump as much water as they want without cost; therefore, the marginal cost of water equals zero.
The weekly town demand schedule and total revenue schedule for water are shown in the table.
 
-Refer to Table 16-3. As long as Robert and John operate as a profit-maximising monopoly, what will their weekly revenue be?
A) $270 
B) $320 
C) $350 
D) $360

Quizplus · Accepted Answer

To maximize profits, Robert and John will produce where marginal revenue (MR) equals marginal cost (MC). Since the marginal cost of water is zero, they will produce where MR equals zero. This occurs at a quantity of 80 litres per week, which will bring in a revenue of $360 (20 x $18). Therefore, the answer is D, $360.

Table 16-3 Imagine a Small Town in Which Only Two Residents, Robert