Table 17-2
Imagine a small town in which only two residents, Abby and Brad, own wells that produce safe drinking water. Each week Abby and Brad work together to decide how many gallons of water to pump. They bring water to town and sell it at whatever price the market will bear. To keep things simple, suppose that Abby and Brad can pump as much water as they want without cost so that the marginal cost is zero. The weekly town demand schedule and total revenue schedule for water is shown in the table below:
-Refer to Table 17-2. Suppose that Abby and Brad work together to operate as a profit-maximizing monopolist. What price will they charge for water?
A)$8
B)$7
C)$6
D)$4

Question

Table 17-2
Imagine a small town in which only two residents, Abby and Brad, own wells that produce safe drinking water. Each week Abby and Brad work together to decide how many gallons of water to pump. They bring water to town and sell it at whatever price the market will bear. To keep things simple, suppose that Abby and Brad can pump as much water as they want without cost so that the marginal cost is zero. The weekly town demand schedule and total revenue schedule for water is shown in the table below: 
-Refer to Table 17-2. Suppose that Abby and Brad work together to operate as a profit-maximizing monopolist. What price will they charge for water?
A)$8 
B)$7 
C)$6 
D)$4

Quizplus · Accepted Answer

To maximize profit, a monopolist sets output where marginal revenue equals marginal cost. In this case, since the marginal cost is zero, the monopolist will set output where marginal revenue is also zero. Looking at the table, we can see that the marginal revenue for the fourth gallon is $6, which is also the market price they will charge. Therefore, the answer is C) $6.

Table 17-2 Imagine a Small Town in Which Only Two Residents, Abby