3. The components of marginal revenue Manuel's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Manuel produced four fire engines, but he has decided to increase production to five fire engines. The following graph shows the demand curve Manuel faces. As you can see, to sell the additional engine, Manuel must lower his price from $105,000 to $90,000 per fire engine. Note that while Manuel 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. 150 135 Revenue Lost 120 Demand 105 Revenue Gained 90 75 60 45 30 -15 0 PRICE (Thousands of dollars per fire engine) 0 + 1 2 + 3 4 5 6 7 QUANTITY (Fire engines) 8 9 10

3. The components of marginal revenue Manuel's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Manuel produced four fire engines, but he has decided to increase production to five fire engines. The following graph shows the demand curve Manuel faces. As you can see, to sell the additional engine, Manuel must lower his price from $105,000 to $90,000 per fire engine. Note that while Manuel 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. 150 135 Revenue Lost 120 Demand 105 Revenue Gained 90 75 60 45 30 -15 0 PRICE (Thousands of dollars per fire engine) 0 + 1 2 + 3 4 5 6 7 QUANTITY (Fire engines) 8 9 10

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Consider a price-searching firm, Sam’s Fire Engines, which sells fire engines in the fictional country of Pyrotania. Initially, Sam’s produced seven fire engines but then decided to increase production to eight fire engines. The following graph shows the demand curve the firm faces. To sell the additional engine, Sam’s must lower its price from $100,000 to $50,000 per engine. (Hint: Sam’s Fire Engines gains revenue from the additional engine it sells, but it also loses revenue from the initial seven engines because it sells them all at the lower price.) On the following graph, 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.
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Please answer sections a-e attached.
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