3. Thè components of marginal revenue Darnell's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Darnell produced seven fire engines, but he has decided to increase production to eight fire engines. The following graph shows the demand curve Darnell faces. As you can see, to sell the additional engine, Darnell must lower his price from $175,000 to $150,000 per fire engine. Note that while Darnell gains revenue from the additional engine he sells, he also loses revenue from the initial seven 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 seven engines by selling at $150,000 rather than $175,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at $150,000. 250 225 200 Revenue Lost Demand 175 150 Revenue Gained 125 100 75 60 25 10 QUANTITY (Fe engines) PRICE (Thousands of dolars per fire engine)
3. Thè components of marginal revenue Darnell's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Darnell produced seven fire engines, but he has decided to increase production to eight fire engines. The following graph shows the demand curve Darnell faces. As you can see, to sell the additional engine, Darnell must lower his price from $175,000 to $150,000 per fire engine. Note that while Darnell gains revenue from the additional engine he sells, he also loses revenue from the initial seven 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 seven engines by selling at $150,000 rather than $175,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at $150,000. 250 225 200 Revenue Lost Demand 175 150 Revenue Gained 125 100 75 60 25 10 QUANTITY (Fe engines) PRICE (Thousands of dolars per fire engine)
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter10: Prices, Output, And Strategy: Pure And Monopolistic Competition
Section: Chapter Questions
Problem 9E
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Question
Transcribed Image Text:Darnell
increase production from 7 to 8 fire engines because the
dominates in this scenario.
True or False: If Darnell's Fire Engines were a competitive firm instead and $175,000 were the market price for an engine, decreasing its price from
$175,000 to $150,000 would result in the same change in the production quantity and, thus, total revenue.
True
False
Transcribed Image Text:3. Thè components of marginal revenue
Darnell's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Darnell produced seven fire engines, but he has
decided to increase production to eight fire engines. The following graph shows the demand curve Darnell faces. As you can see, to sell the additional
engine, Darnell must lower his price from $175,000 to $150,000 per fire engine. Note that while Darnell gains revenue from the additional enginhe he
sells, he also loses revenue from the Initial seven 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 seven engines by selling at $150,000
rather than $175,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional
engine at $150,000.
250
225
200
Revenue Lost
Demand
175
150
Revenue Gained
125
100
75
60
25
10
QUANTITY (Fre engines)
PRICE (Thousands of dolars per fire engine)
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