Answered: Jabari's HookNLadder is the only…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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3. The components of marginal revenue
Jabari's HookNLadder is the only company selling fire engines in the fictional country of Alexandrina. Jabari initially produced eight trucks, but then decided to increase production to nine trucks. The following graph gives the demand curve faced by Jabari’s HookNLadder. As the graph shows, in order to sell the additional fire truck, Jabari must lower the price from $80,000 to $60,000 per truck. Notice that Jabari 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 $60,000 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 $60,000.

3. The components of marginal revenue

Jabari's HookNLadder is the only company selling fire engines in the fictional country of Alexandrina. Jabari initially produced eight trucks, but then decided to increase production to nine trucks. The following graph gives the demand curve faced by Jabari’s HookNLadder. As the graph shows, in order to sell the additional fire truck, Jabari must lower the price from $80,000 to $60,000 per truck. Notice that Jabari 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.

Jabari (should/should not) increase production from 8 to 9 fire engines because the (price effect/output effect) dominates in this scenario.

The image displays a graph illustrating the relationship between the price and quantity of fire engines, labeled "Demand."

**Graph Details:**

- **Axes:**
- The y-axis represents "Price" in thousands of dollars per fire engine, ranging from 0 to 110.
- The x-axis represents "Quantity" of fire engines, ranging from 0 to 10.

- **Demand Curve:**
- The demand curve is a downward-sloping line, indicating that as the price decreases, the quantity demanded increases.
- Two data points are highlighted on the curve with cross marks, labeled as "Demand."

**Legend:**

- **Revenue Lost:** Represented by a purple symbol.
- **Revenue Gained:** Represented by a green symbol.

This graph is typically used to illustrate basic economic concepts related to demand, showing how price influences the quantity of goods demanded by buyers. The annotations regarding "Revenue Lost" and "Revenue Gained" suggest areas of analysis related to changes in demand or pricing strategies.

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