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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.

Principles of Microeconomics
Principles of Microeconomics
7th Edition
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter16: Monopolistic Competition
Section: Chapter Questions
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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.
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.
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