3. The components of marginal revenue Gilberto's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Gilberto produced four fire engines, but he has decided to increase production to five fire engines. The following graph shows the demand curve Gilberto faces. As you can see, to sell the additional engine, Gilberto must lower his price from $105,000 to $90,000 per fire engine. Note that while Gilberto gains revenue from the additional engine he sells, he also loses revenue from the initial four 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 four engines by selling at $90,000 rather than $105,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at $90,000. PRICE (Thousands of dollars per fire engine) 150 135 105 0 Gilberto 1 2 3 Demand QUANTITY (Five engines) Revenue Lost Revenue Gained increase production from 4 to 5 fire engines because the dominates in this scenario. True or False: If Gilberto's Fire Engines were a competitive firm instead and $105,000 were the market price for an engine, increasing its production would not affect the price at which he can sell engines.
3. The components of marginal revenue Gilberto's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Gilberto produced four fire engines, but he has decided to increase production to five fire engines. The following graph shows the demand curve Gilberto faces. As you can see, to sell the additional engine, Gilberto must lower his price from $105,000 to $90,000 per fire engine. Note that while Gilberto gains revenue from the additional engine he sells, he also loses revenue from the initial four 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 four engines by selling at $90,000 rather than $105,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at $90,000. PRICE (Thousands of dollars per fire engine) 150 135 105 0 Gilberto 1 2 3 Demand QUANTITY (Five engines) Revenue Lost Revenue Gained increase production from 4 to 5 fire engines because the dominates in this scenario. True or False: If Gilberto's Fire Engines were a competitive firm instead and $105,000 were the market price for an engine, increasing its production would not affect the price at which he can sell engines.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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3. The components of marginal revenue
Gilberto's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania.
Initially, Gilberto produced four fire engines, but he has decided to increase production to
five fire engines. The following graph shows the demand curve Gilberto faces. As you can
see, to sell the additional engine, Gilberto must lower his price from $105,000 to $90,000
per fire engine. Note that while Gilberto gains revenue from the additional engine he sells,
he also loses revenue from the initial four 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 four engines by selling at $90,000 rather than $105,000. Then use the
green rectangle (triangle symbols) to shade the area representing the revenue gained
from selling an additional engine at $90,000.
PRICE (Thousands of dollars per fire engine)
150
135
120
105
90
75
0
0
Gilberto
1 2 3
True
Demand
False
7 8
QUANTITY (Five engines)
Revenue Lost
Revenue Gained
True or False: If Gilberto's Fire Engines were a competitive firm instead and $105,000
were the market price for an engine, increasing its production would not affect the price at
which he can sell engines.
increase production from 4 to 5 fire engines because the
dominates in this scenario.
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