Table 17-1
Imagine a small town in which only two residents, Rochelle and Alec, own wells that produce safe drinking water. Each week Rochelle and Alec 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 Rochelle and Alec can pump as much water as they want without cost so that the marginal cost of water equals zero. The town's weekly demand schedule and total revenue schedule for water is shown in the table below:
-Refer to Table 17-1. If Rochelle and Alec operate as a profit-maximizing monopoly in the market for water, how many gallons of water will be produced and sold?
A)0
B)500
C)600
D)1,200

Question

Table 17-1
Imagine a small town in which only two residents, Rochelle and Alec, own wells that produce safe drinking water. Each week Rochelle and Alec 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 Rochelle and Alec can pump as much water as they want without cost so that the marginal cost of water equals zero. The town's weekly demand schedule and total revenue schedule for water is shown in the table below: 
-Refer to Table 17-1. If Rochelle and Alec operate as a profit-maximizing monopoly in the market for water, how many gallons of water will be produced and sold?
A)0 
B)500 
C)600 
D)1,200

Quizplus · Accepted Answer

As a profit-maximizing monopoly, Rochelle and Alec will produce where marginal revenue (MR) equals marginal cost (MC). Since their marginal cost of water is zero, they will produce where MR is also zero (the point at which MR intersects the horizontal axis). From the table, we can see that this occurs at a quantity of 600 gallons of water. Therefore, they will produce and sell 600 gallons of water each week.

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