Alex increase production from 6 to 7 fire engines because the dominates in this scenario. True or False: If Alex's Fire Engines were a competitive firm instead and $100,000 were the market price for an engine, decreasing its price from $100,000 to $50,000 would result in a decrease in the production quantity, but an increase in total revenue. True False

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
icon
Related questions
Question
3. The components of marginal revenue
Alex's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially,
Alex produced six fire engines, but he has decided to increase production to seven fire engines.
The following graph shows the demand curve Alex faces. As you can see, to sell the additional
engine, Alex must lower his price from $100,000 to $50,000 per fire engine. Note that while Alex
gains revenue from the additional engine he sells, he also loses revenue from the initial six engine
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 six 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.
PRICE (Thousands of dollars per fire engine)
250
225
200
175
150
125
100
75
50
25
Alex
0
1
2 3 4 5
QUANTITY (Fire engines)
O True
False
6
Demand
7
8 9 10
Revenue Lost
Revenue Gained
?
increase production from 6 to 7 fire engines because the
dominates in this scenario.
True or False: If Alex's Fire Engines were a competitive firm instead and $100,000 were the
market price for an engine, decreasing its price from $100,000 to $50,000 would result in a
decrease in the production quantity, but an increase in total revenue.
Transcribed Image Text:3. The components of marginal revenue Alex's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Alex produced six fire engines, but he has decided to increase production to seven fire engines. The following graph shows the demand curve Alex faces. As you can see, to sell the additional engine, Alex must lower his price from $100,000 to $50,000 per fire engine. Note that while Alex gains revenue from the additional engine he sells, he also loses revenue from the initial six engine 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 six 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. PRICE (Thousands of dollars per fire engine) 250 225 200 175 150 125 100 75 50 25 Alex 0 1 2 3 4 5 QUANTITY (Fire engines) O True False 6 Demand 7 8 9 10 Revenue Lost Revenue Gained ? increase production from 6 to 7 fire engines because the dominates in this scenario. True or False: If Alex's Fire Engines were a competitive firm instead and $100,000 were the market price for an engine, decreasing its price from $100,000 to $50,000 would result in a decrease in the production quantity, but an increase in total revenue.
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps with 1 images

Blurred answer
Knowledge Booster
Profit Maximization
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education