Economics 2. Relationship between total and marginal revenueSuppose there's an appliance store that produces and sells air conditioners. It could set its price high and sell veryfew air conditioners, or it could set its price low and sell lots of air conditioners. The following table shows somepossible choices this store could make for its annual production.ChoiceABCDEPrice$6004503001500DOLLARS (Thousands of dollars per year)6054The following graph plots the firm's "total revenue" curve: that is, the relationship between quantity and totalrevenue given by the two right columns in the previous table. The five choices are also labeled. Finally, two blacklines are shown; these lines are tangent to the green curve at points B and D.4842363024181260A40RX80Quantity080160240320XCAa AaTotalRevenueE120 160 200 240 280 320OUTPUT (A/C units sold per year)Total Revenue$036,00048,00036,0000For small increases in output, the slope of the total revenue curve at a point is approximately equal to the change intotal revenue divided by the change in output. Therefore, the slope of the total revenue curve at any output levelapproximates the firm's. Note that the slope of the total revenue curve at any point isthe same as the slope of a line tangent to the total revenue curve at that point. The following diagram plots this firm's demand curve. Using the previous total revenue graph, calculate the slope ofthe lines tangent to the total revenue curve at points B and D. Based on this information, use the black line (Xsymbols) to plot the firm's marginal revenue (MR) curve on the graph.DOLLARS (Dollars per air conditioner)6805444082721360-136-272-408-544-680040Demand80 120 160 200 240 280 320OUTPUT (Air conditioners per year]Marginal Revenue-x-x-Help Clear AllThe total revenue curve reaches its maximum at a quantity ofmarginal revenue curve isair conditioners per year. At this point, the

The total revenue is maximum at the output level where the marginal revenue is 0. marginal revenue…

Relationship betwe Choice A Suppose there's an appliance store that produces and sells air conditioners. It could set its price high and sell very few air conditioners, or it could set its price low and sell lots of air conditioners. The following table shows some possible choices this store could make for its annual production. BUDE Price $600 450 300 150 0 60 54 marginal DOLLARS (Thousands of dollars per year) 48 42 The following graph plots the firm's "total revenue" curve: that is, the relationship between quantity and total revenue given by the two right columns in the previous table. The five choices are also labeled. Finally, two black lines are shown; these lines are tangent to the green curve at points B and D. 36 30 24 18 12 6 A 0 40 B 80 Quantity 0 80 160 240 320 X C Aa Aa Total Revenue E 120 160 200 240 280 320 OUTPUT (A/C units sold per year] Total Revenue $0 36,000 48,000 36,000 0

Relationship betwe Choice A Suppose there's an appliance store that produces and sells air conditioners. It could set its price high and sell very few air conditioners, or it could set its price low and sell lots of air conditioners. The following table shows some possible choices this store could make for its annual production. BUDE Price $600 450 300 150 0 60 54 marginal DOLLARS (Thousands of dollars per year) 48 42 The following graph plots the firm's "total revenue" curve: that is, the relationship between quantity and total revenue given by the two right columns in the previous table. The five choices are also labeled. Finally, two black lines are shown; these lines are tangent to the green curve at points B and D. 36 30 24 18 12 6 A 0 40 B 80 Quantity 0 80 160 240 320 X C Aa Aa Total Revenue E 120 160 200 240 280 320 OUTPUT (A/C units sold per year] Total Revenue $0 36,000 48,000 36,000 0

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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