Aquades Water Company
The AquAdes Waters Company has a monopoly on selling bottled water from a special spring in AquAdes thought to have
medicinal benefits. The following table shows the demand curve for gallons of AquAdes Waters per month. The company has
no fixed costs and its marginal cost is constant at $4 per gallon
a. Complete the table by calculating the total revenue and marginal revenue associated with different prices of a gallon of
water. (Hint: remember that marginal revenue is the change in total revenue divided by the change in output.)
Price per
gallon
$
$
$
$
$
10,0
9,0
8,0
7,0
6,0
Gallons of water Marginal Cost Total Revenue
Marginal Revenue
(in thousands)
( per gallons) (In thousands)
0
10
20
30
40
$
5,0
50
$
4,0
60
$
$
$
$
3,0
2,0
1,0
-
70
80
90
100
4
$
4
$
4
$
4
$
4
$
4
4
4
4
$
$
7,0
$
5,0
$
3,0
$
1,0
$
-1,0
$
-3,0
$
-5,0
$
-7,0
$
-9,0
210,0
240,0
$
240,0
$
9,0
160,0
250,0
$
$
90,0
$
$
4
4
-
210,0
160,0
90,0
Contoso business plan
1
Aquades Water Company
The AquAdes Waters Company has a monopoly on selling bottled water from a special spring in AquAdes thought to have
medicinal benefits. The following table shows the demand curve for gallons of AquAdes Waters per month. The company has
no fixed costs and its marginal cost is constant at $4 per gallon
b. Graph the demand curve, marginal revenue curve, marginal cost curve, and the average total cost curve for AquAdes
Waters. MC = ∂ TC/∂Q
∫ MC. ∂Q = ∫ ∂ TC
∫ 4. ∂Q = TC
4.Q = TC
ATC = TC/Q = 4.Q / Q = 4 USD
Price per Gallons of water
gallon
(in thousands)
$ 10,0
$
9,0
$
8,0
$
7,0
$
6,0
$
5,0
$
4,0
$
3,0
$
2,0
$
1,0
$
-
0
10
20
30
40
50
60
70
80
90
100
Marginal
Cost
( per gallons)
$
$
$
$
$
$
$
$
$
$
4,0
4,0
4,0
4,0
4,0
4,0
4,0
4,0
4,0
4,0
TC
=4xQ
$
$
$
$
$
$
$
$
$
$
40,0
80,0
120,0
160,0
200,0
240,0
280,0
320,0
360,0
400,0
Total Revenue
(In thousands)
=PxQ
$
$
$
$
$
$
$
$
$
$
$
90,0
160,0
210,0
240,0
250,0
240,0
210,0
160,0
90,0
-
Marginal
Revenue
$
$
$
$
$
$
$
$
$
$
9,0
7,0
5,0
3,0
1,0
-1,0
-3,0
-5,0
-7,0
-9,0
Total Profit
= TR- TC
$
$
$
$
$
$
$
$
$
$
50,0
80,0
90,0
80,0
50,0
-70,0
-160,0
-270,0
-400,0
Contoso business plan
2
Aquades Water Company
The AquAdes Waters Company has a monopoly on selling bottled water from a special spring in AquAdes thought to have
medicinal benefits. The following table shows the demand curve for gallons of AquAdes Waters per month. The company has
no fixed costs and its marginal cost is constant at $4 per gallon
c. At what price and output will AquAdes Waters maximize profit? How much profit will it earn at that price and output?
Price per Gallons of water
gallon
(in thousands)
$
10,0
0
$
$
$
$
$
$
$
$
$
$
9,0
8,0
7,0
6,0
5,0
4,0
3,0
2,0
1,0
-
10
20
30
40
50
60
70
80
90
100
Marginal
Cost
( per gallons)
$
$
$
$
$
$
$
$
$
$
4,0 $
4,0 $
4,0 $
4,0 $
4,0 $
4,0 $
4,0 $
4,0 $
4,0 $
4,0 $
TC
= 4Q
40,0
80,0
120,0
160,0
200,0
240,0
280,0
320,0
360,0
400,0
Total Revenue
Total Profit
(In thousands)
= TR- TC
=PxQ
$
$
$
$
$
$
$
$
$
$
$
90,0
160,0
210,0
240,0
250,0
240,0
210,0
160,0
90,0
-
$
$
$
$
$
$
$
$
$
$
50,0
80,0
90,0
80,0
50,0
-70,0
-160,0
-270,0
-400,0
At price 7 usd and quantity 30,000 gallons water,
aquadess water company will get maximize profit
d. If this were a competitive market rather than a
monopoly, what would be the equilibrium price and
output?
Firm in competitive market represenst TR = TC or earn
zero proft . The company at equilibrium when it the
price 4 usd and produces 60 gallon of water
Contoso business plan
3
Aquades Water Company
The AquAdes Waters Company has a monopoly on selling bottled water from a special spring in AquAdes thought to have
medicinal benefits. The following table shows the demand curve for gallons of AquAdes Waters per month. The company has
no fixed costs and its marginal cost is constant at $4 per gallon
e. On the graph, show the deadweight loss associated with the monopolist
Deadweight loss is shown on the graph in the
pink area which is the area between the
intersection of Marginal cost (MC) with
Demand and MR (Marginal Revenue)
DWL
Contoso business plan
4