3. The components of marginal revenue Sean's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Sean produced eight fire engines, but he has decided to increase production to nine fire engines. The following graph shows the demand curve Sean faces. As you can see, to sell the additional engine, Sean must lower his price from $80,000 to $60,000 per fire engine. Note that while Sean gains revenue from the additional engine he sells, he also loses revenue from the initial eight engines because he sells them all 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. PRICE (Thousands of dollars per fire engine) Sean 100 90 80 70 40 10 ++ 0 0 1 True + 2 False 3 4 5 QUANTITY (Fire engines) 6 7 8 Demand 9 10 Revenue Lost Revenue Gained increase production from 8 to 9 fire engines because the ? True or False: If Sean's Fire Engines were a competitive firm instead and $80,000 were the market price for an engine, decreasing its price from $80,000 to $60,000 would result in the same change in the production quantity and, thus, total revenue. dominates in this scenario.
3. The components of marginal revenue Sean's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Sean produced eight fire engines, but he has decided to increase production to nine fire engines. The following graph shows the demand curve Sean faces. As you can see, to sell the additional engine, Sean must lower his price from $80,000 to $60,000 per fire engine. Note that while Sean gains revenue from the additional engine he sells, he also loses revenue from the initial eight engines because he sells them all 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. PRICE (Thousands of dollars per fire engine) Sean 100 90 80 70 40 10 ++ 0 0 1 True + 2 False 3 4 5 QUANTITY (Fire engines) 6 7 8 Demand 9 10 Revenue Lost Revenue Gained increase production from 8 to 9 fire engines because the ? True or False: If Sean's Fire Engines were a competitive firm instead and $80,000 were the market price for an engine, decreasing its price from $80,000 to $60,000 would result in the same change in the production quantity and, thus, total revenue. dominates in this scenario.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Transcribed Image Text:3. The components of marginal revenue
Sean's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Sean produced eight fire engines, but he has decided
to increase production to nine fire engines. The following graph shows the demand curve Sean faces. As you can see, to sell the additional engine,
Sean must lower his price from $80,000 to $60,000 per fire engine. Note that while Sean gains revenue from the additional engine he sells, he also
loses revenue from the initial eight engines because he sells them all 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.
PRICE (Thousands of dollars per fire engine)
Sean
100
90
80
70
40
10 ++
0
0
1
True
+
2
False
3 4 5
QUANTITY (Fire engines)
6
7
8
Demand
9 10
Revenue Lost
Revenue Gained
increase production from 8 to 9 fire engines because the
?
True or False: If Sean's Fire Engines were a competitive firm instead and $80,000 were the market price for an engine, decreasing its price from
$80,000 to $60,000 would result in the same change in the production quantity and, thus, total revenue.
dominates in this scenario.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 4 steps with 1 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education