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

question 170

Multiple Choice

Table 17-1
Imagine a small town in which only two residents, Sydney and Matthew, own wells that produce safe drinking water. Each week Sydney and Matthew 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 Sydney and Matthew 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 following table:
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$$\begin{array} { | c | c | c | } \hline \begin{array} { c } \text { Quantity } \\\text { (Gallons) }\end{array} & \begin{array} { c } \text { Price } \\\text { (Dollars per gallon) }\end{array} & \begin{array} { c } \text { Total Revenue and Total Profit } \\\text { (Dollars) }\end{array} \\\hline 0 & 48 & 0 \\\hline 90 & 44 & 3,960 \\\hline 180 & 40 & 7,200 \\\hline 270 & 36 & 9,720 \\\hline 360 & 32 & 11,520 \\\hline 450 & 28 & 12,600 \\\hline 540 & 24 & 12,960 \\\hline 630 & 20 & 12,600 \\\hline 720 & 16 & 11,520 \\\hline 810 & 12 & 9,720 \\\hline 900 & 8 & 7,200 \\\hline 990 & 4 & 3,960 \\\hline 1,080 & 0 & 0 \\\hline\end{array}$$ ​
-Refer to Table 17-1. What is the socially efficient quantity of water?

• A)0 gallons
• B)540 gallons
• C)810 gallons
• D)1,080 gallons

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Definitions:

Total Variable Cost

The sum of all costs that vary directly with the level of production or sales volume.

Total Fixed Costs

The combined sum of all costs that do not change with the level of production or sales over a certain period.

Purchase Price Variances

The difference between the actual cost of purchased materials and the expected (or standard) cost, which can indicate efficiency or market condition changes.

Standard Cost

Predetermined cost calculated for the production of a product or performance of a service under normal conditions.