Suppose That the Demand Curve for Mineral Water Is Given

question 7

Multiple Choice

Suppose that the demand curve for mineral water is given by p = 50 - 16q, where p is the price per bottle paid by consumers and q is the number of bottles purchased by consumers. Mineral water is supplied to consumers by a monopolistic distributor who buys from a monopolistic producer, who is able to produce mineral water at zero cost. The producer charges the distributor a price of c per bottle. Given his marginal cost of c per unit, the distributor chooses an output to maximize his own profits. Knowing that this is what the distributor will do, the producer sets his price c so as to maximize his revenue. The price paid by consumers under this arrangement is

• A) $3.13.
• B) $12.50.
• C) $37.50.
• D) $25.
• E) $1.56.

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