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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
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Economics

2. Relationship between total and marginal revenue 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. Choice A B C D E Price $600 450 300 150 0 DOLLARS (Thousands of dollars per year) 60 54 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. 48 42 36 30 24 18 12 6 0 A 40 R X 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 For small increases in output, the slope of the total revenue curve at a point is approximately equal to the change in total revenue divided by the change in output. Therefore, the slope of the total revenue curve at any output level approximates the firm's . Note that the slope of the total revenue curve at any point is the same as the slope of a line tangent to the total revenue curve at that point.
Transcribed Image Text:2. Relationship between total and marginal revenue 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. Choice A B C D E Price $600 450 300 150 0 DOLLARS (Thousands of dollars per year) 60 54 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. 48 42 36 30 24 18 12 6 0 A 40 R X 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 For small increases in output, the slope of the total revenue curve at a point is approximately equal to the change in total revenue divided by the change in output. Therefore, the slope of the total revenue curve at any output level approximates the firm's . Note that the slope of the total revenue curve at any point is the 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 of the lines tangent to the total revenue curve at points B and D. Based on this information, use the black line (X symbols) to plot the firm's marginal revenue (MR) curve on the graph. DOLLARS (Dollars per air conditioner) 680 544 408 272 136 0 -136 -272 -408 -544 -680 0 40 Demand 80 120 160 200 240 280 320 OUTPUT (Air conditioners per year] Marginal Revenue -x-x- Help Clear All The total revenue curve reaches its maximum at a quantity of marginal revenue curve is air conditioners per year. At this point, the
Transcribed Image Text:The following diagram plots this firm's demand curve. Using the previous total revenue graph, calculate the slope of the lines tangent to the total revenue curve at points B and D. Based on this information, use the black line (X symbols) to plot the firm's marginal revenue (MR) curve on the graph. DOLLARS (Dollars per air conditioner) 680 544 408 272 136 0 -136 -272 -408 -544 -680 0 40 Demand 80 120 160 200 240 280 320 OUTPUT (Air conditioners per year] Marginal Revenue -x-x- Help Clear All The total revenue curve reaches its maximum at a quantity of marginal revenue curve is air conditioners per year. At this point, the
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