3. The components of marginal revenue Dmitri's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Dmitri produced seven fire engines, but he has decided to increase production to eight fire engines. The following graph shows the demand curve Dmitri faces. As you can see, to sell the additional engine, Dmitri must lower his price from $100,000 to $50,000 per fire engine. Note that while Dmitri gains revenue from the additional engine he sells, he also loses revenue from the initial seven 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 seven engines by selling at $50,000 rather than $100,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at $50,000. 250 225 Revenue Lost 200 175 150 Revenue Gained 125 Demand 100 75 50 A A 25 1 7 8 10 QUANTITY (Fire engines) PRICE (Thousands of dollars per fire engine)

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3. The components of marginal revenue
Dmitri's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Dmitri produced seven fire engines, but he has
decided to increase production to eight fire engines. The following graph shows the demand curve Dmitri faces. As you can see, to sell the additional
engine, Dmitri must lower his price from $100,000 to $50,000 per fire engine. Note that while Dmitri gains revenue from the additional engine he
sells, he also loses revenue from the initial seven 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 seven engines by selling at $50,000
rather than $100,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional
engine at $50,000.
250
225
Revenue Lost
200
을 175
150
Revenue Gained
125
Demand
100
75
2
7
8
10
QUANTITY (Fire engines)
PRICE (Thousands of dollars per fire engine)
Transcribed Image Text:3. The components of marginal revenue Dmitri's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Dmitri produced seven fire engines, but he has decided to increase production to eight fire engines. The following graph shows the demand curve Dmitri faces. As you can see, to sell the additional engine, Dmitri must lower his price from $100,000 to $50,000 per fire engine. Note that while Dmitri gains revenue from the additional engine he sells, he also loses revenue from the initial seven 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 seven engines by selling at $50,000 rather than $100,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at $50,000. 250 225 Revenue Lost 200 을 175 150 Revenue Gained 125 Demand 100 75 2 7 8 10 QUANTITY (Fire engines) PRICE (Thousands of dollars per fire engine)
Dmitri should not v increase production from 7 to 8 fire engines because the price effect
dominates in this scenario.
True or False: If Dmitri's Fire Engines were a competitive firm instead and $100,000 were the market price for an engine, increasing its production
would not affect the price at which he can sell engines.
True
O False
Transcribed Image Text:Dmitri should not v increase production from 7 to 8 fire engines because the price effect dominates in this scenario. True or False: If Dmitri's Fire Engines were a competitive firm instead and $100,000 were the market price for an engine, increasing its production would not affect the price at which he can sell engines. True O False
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