Question

# The components of marginal revenue

Larry (should/should not) increase production 8 to 9 fire engines, because revenue gained is (greater/less) than revenue lost in this scenario.

True or False: If Larry's Fire Engines were a competitive firm instead and \$100,000 were the market price for an engine, decreasing its price from \$100,000 to \$80,000 would result in the same change in production quantity and, thus, total revenue.

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3. The components of marginal revenue Larry's Fire Engines is the sole seller of ﬁre engines in the ﬁctional country of Pyrotania. Initially, Larry produced eight ﬁre engines, but he has decided to increase production to nine fire engines. The following graph shows the demand curve Larry faces. As you can see, to sell the additional engine, Larry must lower his price from \$100,000 to \$80,000 per ﬁre engine. Note that although Larry 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 \$80,000 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 \$80,000. 200 H Revenue Lost H Revenue Gained 180 160 140 120 100 80 60 40 PRICE (Thousands of dollars per ﬁre engine) 20 o 1 2 3 4 5 s 7 a 9 10 QUANTITY (Fire engines) Larry V increase production from 8 to 9 ﬁre engines, because revenue gained is V than revenue lost in this scenario. True or False: If Larry's Fire Engines were a competitive ﬁrm instead and \$100,000 were the market price for an engine, decreasing its price from \$100,000 to \$80,000 would result in the same change in production quantity and, thus, total revenue. 0 True 0 False

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The components of marginal revenue Larry's Fire Engines is the sole seller of re engines in the ctional country of Pyrotania. Initially, Larry...

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