Consider a town in which only two residents, Kevin and Maria, own wells that pro
ID: 1122944 • Letter: C
Question
Consider a town in which only two residents, Kevin and Maria, own wells that produce water safe for drinking. Kevin and Maria can pump and sell as much water as they want at no cost. For them, total revenue equals profit. The following table shows the town's demand schedule for water. Quantity Demanded (Gallons of water) Price Total Revenue (Dollars per gallon) (Dollars) 3.60 3.30 3.00 2.70 2.40 2.10 1.80 1.50 1.20 0.90 0.60 0.30 70 105 140 175 210 245 280 315 350 385 420 116 210 284 336 368 378 368 336 284 210 116 Timeout 57:52Explanation / Answer
ANSWER:
THE PROFIT MAXIMIZING PRICE IS $1.80 PER GALLON AS THE PROFIT IS MAXIMUM THERE THAT IS $378 AND THE TOTALOUTPUT IS 210 GALLONS ( RESPECTIVE VALUE IN THE TABLE AT $1.80 PRICE).
KEVIN AND MARIA PROFIT ARE $189 EACH AS IT IS FOUND OUT BY DIVIDING $378 / 2 = $189
AFTER KEVIN IMPLEMENTS HIS PLAN THE PRICE OF THE WATER WILL DECREASE TO $1.50 PER GALLON AS THE PRODUCTION WILL INCREASE FROM 210 GALLONS TO 245 GALLONS ( 35 GALLON INCREASE PRODUCTION BY KEVIN) AND THE RESPECTIVE PRICE IN THE TABLE FOR 245 GALLON IS $1.50.
THE REVENUE OF KEVIN IS 105 + 35 ( INCREASED PRODUCTION) = 140 GALLONS * 1.50 = $210
THE REVENUE OFMARIA IS 105 GALLONS * 1.50 = $157.50
AFTER MARIA INCREASES HER PRODUCTION BY 35 GALLON THE TOTAL PRODUCTION WILL BE 280 GALLONS FROM 245 GALLONS AND THEREFORE THE TOTAL REVENUE WILL BE $336 (TOTAL REVENUE IN THE TABLE AT 280 GALLON PRODUCTION) AND REVENUE OF BOTH MARIA AND KEVIN WILL BE $336 / 2 = $168
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