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Table 17-6 Imagine a Small Town in Which Only Two Residents, Kunal

question 221

Multiple Choice

Table 17-6
Imagine a small town in which only two residents, Kunal and Naj, own wells that produce safe drinking water. Each week Kunal and Naj work together to decide how many gallons of water to pump, to bring the water to town, and to sell it at whatever price the market will bear. Assume Kunal and Naj can pump as much water as they want without cost so that the marginal cost of water equals zero.
The weekly town demand schedule and total revenue schedule for water are shown in the table below.
-Refer to Table 17-6. If the market for water were perfectly competitive instead of monopolistic, how many gallons of water would be produced and sold?

Definitions:

Monopolist

An entity with exclusive control over the supply of a particular good or service, setting prices and production levels.

Price Discrimination

A pricing strategy where identical or substantially similar goods or services are sold at different prices by the same provider in different markets or to different customers.

Perfect Competition

A market structure characterized by a large number of small firms, a homogeneous product, freedom of entry and exit, and perfect information, leading to firms being price takers.

Consumer Surplus

The difference between what consumers are willing to pay for a good or service and what they actually pay, representing the benefit to consumers.