3. The components of marginal revenue Mo's HookNLadder is the only company selling fire engines in the fictional country of Alexandrina. Mo initially produced eight trucks, but then decided to increase production to nine trucks. The following graph gives the demand curve faced by Mo's HookNLadder. As the graph shows, in order to sell the additional fire truck, Mo must lower the price from $75,000 to $50,000 per truck. Notice that Mo gains revenue from the sale of the additional engine, but at the same time, he loses revenue from the initial eight engines because they are all sold 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 $50,000 rather than $75,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at $50,000. PRICE (Thousands of dollars per fire engine) 275 250 225 200 175 150 125 100 75 50 25 0 0 1 2 3 Demand 5 6 7 8 9 10 QUANTITY (Fire engines) Revenue Lost Revenue Gained ? Mo increase production from 8 to 9 fire engines because the dominates in this scenario. True or False: If alternatively Mo's HookNLadder were a competitive firm and $75,000 were the market price for an engine, increasing production would not affect the price at which the company is able to sell engines. O True O False
3. The components of marginal revenue Mo's HookNLadder is the only company selling fire engines in the fictional country of Alexandrina. Mo initially produced eight trucks, but then decided to increase production to nine trucks. The following graph gives the demand curve faced by Mo's HookNLadder. As the graph shows, in order to sell the additional fire truck, Mo must lower the price from $75,000 to $50,000 per truck. Notice that Mo gains revenue from the sale of the additional engine, but at the same time, he loses revenue from the initial eight engines because they are all sold 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 $50,000 rather than $75,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at $50,000. PRICE (Thousands of dollars per fire engine) 275 250 225 200 175 150 125 100 75 50 25 0 0 1 2 3 Demand 5 6 7 8 9 10 QUANTITY (Fire engines) Revenue Lost Revenue Gained ? Mo increase production from 8 to 9 fire engines because the dominates in this scenario. True or False: If alternatively Mo's HookNLadder were a competitive firm and $75,000 were the market price for an engine, increasing production would not affect the price at which the company is able to sell engines. O True O False
Chapter1: Making Economics Decisions
Section: Chapter Questions
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Transcribed Image Text:3. The components of marginal revenue
Mo's HookNLadder is the only company selling fire engines in the fictional country of Alexandrina. Mo initially produced eight trucks, but then decided
to increase production to nine trucks. The following graph gives the demand curve faced by Mo's HookNLadder. As the graph shows, in order to sell the
additional fire truck, Mo must lower the price from $75,000 to $50,000 per truck. Notice that Mo gains revenue from the sale of the additional engine,
but at the same time, he loses revenue from the initial eight engines because they are all sold 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 $50,000 rather
than $75,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at
$50,000.
PRICE (Thousands of dollars per fire engine)
275
250
225
200
175
150
125
100
75
50
25
0
0
1
2
3
Demand
5
6
7
8
9
10
QUANTITY (Fire engines)
Revenue Lost
Revenue Gained
?
Mo
increase production from 8 to 9 fire engines because the
dominates in this scenario.
True or False: If alternatively Mo's HookNLadder were a competitive firm and $75,000 were the market price for an engine, increasing production
would not affect the price at which the company is able to sell engines.
O True
O False
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