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
Chapter18: Asymmetric Information
Section: Chapter Questions
Problem 18.3P
Related questions
Question
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
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
Recommended textbooks for you
