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

question 143

Multiple Choice

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. $\begin{array}{|c|c|c|}\hline \text { Weekly quantity (in litres) } & \text { Price (\$) per litre } & \begin{array}{c}\text { Weekly total revenue (and } \\\text { total profit) (\$) }\end{array} \\\hline 0 & 12 & \$ 0 \\\hline 5 & 11 & 55 \\\hline 10 & 10 & 100 \\\hline 15 & 9 & 135 \\\hline 20 & 8 & 160 \\\hline 25 & 7 & 175 \\\hline 30 & 6 & 180 \\\hline 35 & 5 & 175 \\\hline 40 & 4 & 160 \\\hline 45 & 3 & 135 \\\hline 50 & 2 & 100 \\\hline 55 & 1 & 55 \\\hline 60 & 0 & 0 \\\hline\end{array}$
-Refer to Table 16-3.The socially efficient level of water supplied to the market would be:

• A)15 litres
• B)30 litres
• C)45 litres
• D)60 litres

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Definitions:

Beta

A measure of a stock's volatility in relation to the overall market, indicating the stock's sensitivity to market movements.

Risk-Free Rate

A hypothetical interest rate associated with an absolutely risk-free investment, typically exemplified by government securities.

Market Portfolio

A theoretical bundle of investments that includes all available assets in the market, with each asset weighted according to its market capitalization.

Risk-Free Rate

The expected profit from an investment that carries no risk of losing money, frequently depicted through the interest rate of government bonds.