Chapter14: Monopoly
Section: Chapter Questions
Problem 14.13P
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Question
Economic
Transcribed Image Text:Homework (Ch 15)
Keep the Highest / 3
3. The components of marginal revenue
Omari's HookNLadder is the only company selling fire engines in the fictional country of
Alexandrina. Omari initially produced eight trucks, but then decided to increase production to nine
trucks. The following graph gives the demand curve faced by Omari's HookNLadder. As the graph
shows, in order to sell the additional fire truck, Omari must lower the price from $80,000 to
$40,000 per truck. Notice that Omari 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.
Attempts
Use the purple rectangle (diamond symbols) to shade the area representing the revenue lost from
the initial eight engines by selling at $40,000 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 $40,000.
PRICE (Thousands of dollars per fire engine)
220
200
180
160
140
120
100
80
60
40
20
0 1
2 3
4
5
QUANTITY (Fire engines)
Omari
dominates in this scenario.
▼
O True
O False
6
7
Demand
8 9 10
hxbx
Revenue Lost
Revenue Gained
(?)
increase production from 8 to 9 fire engines because the
True or False: If alternatively Omari's HookNLadder were a competitive firm and $80,000 were the
market price for an engine, decreasing its price from $80,000 to $40,000 would result in a
decrease in the production quantity, but an increase in total revenue.
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