Suppose there is a village located far-away. There is only one well in the village and villagers are dependent on this well for fulfillment of their water requirements. This well is owned by an individual and villagers will have to purchase the water from him. In order to purchase the water, the customer will have to withdraw the water by themselves from the well.

Imagine that there multiple wells and multiple well owners and other things are same as above, then the competition among them will lead the prices to fall to?

Zero Total cost Fixed costs Not enough information

Zero

Since there are many well-owners, any other well owner can attract all the buyers willing to buy for, say, Rs. 5/bucket, by offering to sell to them at a lower price, say, Rs. 4/bucket. Some other well-owner can offer to sell at a still lower price, and the story will repeat itself. In fact, competition among well-owners will drive the price down to zero. When firms are undercutting each others’ prices, prices fall till marginal cost. Since the firms face zero costs, the marginal cost is also zero.