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3. The components of marginal revenue Mo's HookNLadder is the only company selling fire engines in the fictional country of Alexandrina. Mo initially produced four trucks, but then decided to increase production to five trucks. The following graph gives the demand curve faced by Mo's HookNLadder. As the graph shows, in order to sell the additional fire truck, Mo must lower the price from $105,000 to $90,000 per truck. Notice that Mo gains revenue from the sale of the additional engine, but at the same time, he loses revenue from the initial four 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 four engines by selling at $90,000 rather than $105,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at $90,000. PRICE (Thousands of dollars per fire engine) 165 150 135 Revenue Lost 120 Demand 105 Revenue Gained 90 75 60 45 30 15 0 0 1 2 3 4 5 8 7 8 9 10 QUANTITY (Fire engines) (?) Mo increase production from 4 to 5 fire engines because the dominates in this scenario. True or False: If alternatively Mo's HookNLadder were a competitive firm and $105,000 were the market price for an engine, decreasing its price from $105,000 to $90,000 would result in a decrease in the production quantity, but an increase in total revenue. True False

3. The components of marginal revenue Mo's HookNLadder is the only company selling fire engines in the fictional country of Alexandrina. Mo initially produced four trucks, but then decided to increase production to five trucks. The following graph gives the demand curve faced by Mo's HookNLadder. As the graph shows, in order to sell the additional fire truck, Mo must lower the price from $105,000 to $90,000 per truck. Notice that Mo gains revenue from the sale of the additional engine, but at the same time, he loses revenue from the initial four 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 four engines by selling at $90,000 rather than $105,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at $90,000. PRICE (Thousands of dollars per fire engine) 165 150 135 Revenue Lost 120 Demand 105 Revenue Gained 90 75 60 45 30 15 0 0 1 2 3 4 5 8 7 8 9 10 QUANTITY (Fire engines) (?) Mo increase production from 4 to 5 fire engines because the dominates in this scenario. True or False: If alternatively Mo's HookNLadder were a competitive firm and $105,000 were the market price for an engine, decreasing its price from $105,000 to $90,000 would result in a decrease in the production quantity, but an increase in total revenue. True False

Principles of Microeconomics
Principles of Microeconomics
7th Edition
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter14: Firms In Competitive Markets
Section: Chapter Questions
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3. The components of marginal revenue Mo's HookNLadder is the only company selling fire engines in the fictional country of Alexandrina. Mo initially produced four trucks, but then decided to increase production to five trucks. The following graph gives the demand curve faced by Mo's HookNLadder. As the graph shows, in order to sell the additional fire truck, Mo must lower the price from $105,000 to $90,000 per truck. Notice that Mo gains revenue from the sale of the additional engine, but at the same time, he loses revenue from the initial four 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 four engines by selling at $90,000 rather than $105,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at $90,000. PRICE (Thousands of dollars per fire engine) 165 150 135 Revenue Lost 120 Demand 105 Revenue Gained 90 75 60 45 30 15 0 0 1 2 3 4 5 8 7 8 9 10 QUANTITY (Fire engines) (?) Mo increase production from 4 to 5 fire engines because the dominates in this scenario. True or False: If alternatively Mo's HookNLadder were a competitive firm and $105,000 were the market price for an engine, decreasing its price from $105,000 to $90,000 would result in a decrease in the production quantity, but an increase in total revenue. True False
Transcribed Image Text:3. The components of marginal revenue Mo's HookNLadder is the only company selling fire engines in the fictional country of Alexandrina. Mo initially produced four trucks, but then decided to increase production to five trucks. The following graph gives the demand curve faced by Mo's HookNLadder. As the graph shows, in order to sell the additional fire truck, Mo must lower the price from $105,000 to $90,000 per truck. Notice that Mo gains revenue from the sale of the additional engine, but at the same time, he loses revenue from the initial four 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 four engines by selling at $90,000 rather than $105,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at $90,000. PRICE (Thousands of dollars per fire engine) 165 150 135 Revenue Lost 120 Demand 105 Revenue Gained 90 75 60 45 30 15 0 0 1 2 3 4 5 8 7 8 9 10 QUANTITY (Fire engines) (?) Mo increase production from 4 to 5 fire engines because the dominates in this scenario. True or False: If alternatively Mo's HookNLadder were a competitive firm and $105,000 were the market price for an engine, decreasing its price from $105,000 to $90,000 would result in a decrease in the production quantity, but an increase in total revenue. True False
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