3. The components of marginal revenue Alex's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Alex produced eight fire engines, but he has decided to increase production to nine fire engines. The following graph shows the demand curve Alex faces. As you can see, to sell the additional engine, Alex must lower his price from $80,000 to $40,000 per fire engine. Note that while Alex gains revenue from the additional engine he sells, he also loses revenue from the initial eight engines because he sells them all at the lower price. Use the purple rectangle (diamond symbols) to shade the area representing the revenue lost from the initial eight engines by selling at $40,000 rather than $80,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at $40,000. dollars per fire engine) PRICE (Thousands Alex 200 180 160 140 120 100 80 60 40 20 0 0 + 1 True + False 2 + 4 5 6 7 QUANTITY (Fire engines) 3 8 Demand 9 10 Revenue Lost Revenue Gained increase production from 8 to 9 fire engines because the ? True or False: If Alex's Fire Engines were a competitive firm instead and $80,000 were the market price for an engine, increasing its production would not affect the price at which he can sell engines. dominates in this scenario.
3. The components of marginal revenue Alex's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Alex produced eight fire engines, but he has decided to increase production to nine fire engines. The following graph shows the demand curve Alex faces. As you can see, to sell the additional engine, Alex must lower his price from $80,000 to $40,000 per fire engine. Note that while Alex gains revenue from the additional engine he sells, he also loses revenue from the initial eight engines because he sells them all at the lower price. Use the purple rectangle (diamond symbols) to shade the area representing the revenue lost from the initial eight engines by selling at $40,000 rather than $80,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at $40,000. dollars per fire engine) PRICE (Thousands Alex 200 180 160 140 120 100 80 60 40 20 0 0 + 1 True + False 2 + 4 5 6 7 QUANTITY (Fire engines) 3 8 Demand 9 10 Revenue Lost Revenue Gained increase production from 8 to 9 fire engines because the ? True or False: If Alex's Fire Engines were a competitive firm instead and $80,000 were the market price for an engine, increasing its production would not affect the price at which he can sell engines. dominates in this scenario.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:3. The components of marginal revenue
Alex's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Alex produced eight fire engines, but he has decided
to increase production to nine fire engines. The following graph shows the demand curve Alex faces. As you can see, to sell the additional engine, Alex
must lower his price from $80,000 to $40,000 per fire engine. Note that while Alex gains revenue from the additional engine he sells, he also loses
revenue from the initial eight engines because he sells them all at the lower price.
Use the purple rectangle (diamond symbols) to shade the area representing the revenue lost from the initial eight engines by selling at $40,000 rather
than $80,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at
$40,000.
dollars per fire engine)
PRICE (Thousands
Alex
200
180
160
140
120
100
80
60
40
20
0
0
+
1
True
+
False
2
+
4 5 6
7
QUANTITY (Fire engines)
3
8
Demand
9 10
Revenue Lost
Revenue Gained
increase production from 8 to 9 fire engines because the
?
True or False: If Alex's Fire Engines were a competitive firm instead and $80,000 were the market price for an engine, increasing its production would
not affect the price at which he can sell engines.
dominates in this scenario.
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