3. The components of marginal revenue Kevin's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Kevin produced eight fire engines, but he has decided to increase production to nine fire engines. The following graph shows the demand curve Kevin faces. As you can see, to sell the additional engine, Kevin must lower his price from $80,000 to $40,000 per fire engine. Note that although Kevin gains revenue from the additional engine he sells, hei 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 (30 160 140 120 100 80 20 Kevin B 1 1 3 A 6 5 QUANTITY (Fire engnes) Demand B Y 010 Revenue Lost Revenue Gained increase production from 8 to 9 fire engines, because revenue gained is than revenue lost in this scenario.

3. The components of marginal revenue Kevin's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Kevin produced eight fire engines, but he has decided to increase production to nine fire engines. The following graph shows the demand curve Kevin faces. As you can see, to sell the additional engine, Kevin must lower his price from $80,000 to $40,000 per fire engine. Note that although Kevin gains revenue from the additional engine he sells, hei 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 (30 160 140 120 100 80 20 Kevin B 1 1 3 A 6 5 QUANTITY (Fire engnes) Demand B Y 010 Revenue Lost Revenue Gained increase production from 8 to 9 fire engines, because revenue gained is than revenue lost in this scenario.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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