3. The components of marginal revenue Dmitri's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Dmitri produced seven fire engines, but he has decided to increase production to eight fire engines. The following graph shows the demand curve Dmitri faces. As you can see, to sell the additional engine, Dmitri must lower his price from $100,000 to $50,000 per fire engine. Note that while Dmitri 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 $50,000 rather than $100,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at $50,000. 250 225 Revenue Lost 200 175 150 Revenue Gained 125 Demand 100 75 50 A A 25 1 7 8 10 QUANTITY (Fire engines) PRICE (Thousands of dollars per fire engine)

3. The components of marginal revenue Dmitri's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Dmitri produced seven fire engines, but he has decided to increase production to eight fire engines. The following graph shows the demand curve Dmitri faces. As you can see, to sell the additional engine, Dmitri must lower his price from $100,000 to $50,000 per fire engine. Note that while Dmitri 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 $50,000 rather than $100,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at $50,000. 250 225 Revenue Lost 200 175 150 Revenue Gained 125 Demand 100 75 50 A A 25 1 7 8 10 QUANTITY (Fire engines) PRICE (Thousands of dollars per fire engine)

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter8: Perfect Competition

Section: Chapter Questions

Problem 6SCQ: A firms marginal cost curve above the average variable cost curve is equal to the films individual...

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