5 3. The components of marginal revenue Raphael's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Raphael produced five fire engines, but he has decided to increase production to six fire engines. The following graph shows the demand curve Raphael faces. As you can see, to sell the additional engine, Raphael must lower his price from $160,000 to $120,000 per fire engine. Note that although Raphael gains revenue from the additional engine he sells, he also loses revenue from the initial five 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 five engines by selling at $120,000 rather than $160,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at $120,000. 200 PRICE (Thousands of dollars par fra angine) 36885 5 5 5 5 100 120 Domand Ravanua Last + Ravanua Ganad 0 D 1 2 3 4 6 7 B 9 10 QUANTITY (F angines) Raphael increase production from 5 to 6 fire engines, because revenue gained is than revenue lost in this scenario. True or False: If Raphael's Fire Engines were a competitive firm instead and $160,000 were the market price for an engine, decreasing its price from $160,000 to $120,000 would result in an increase in production quantity and total revenue. True False
5 3. The components of marginal revenue Raphael's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Raphael produced five fire engines, but he has decided to increase production to six fire engines. The following graph shows the demand curve Raphael faces. As you can see, to sell the additional engine, Raphael must lower his price from $160,000 to $120,000 per fire engine. Note that although Raphael gains revenue from the additional engine he sells, he also loses revenue from the initial five 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 five engines by selling at $120,000 rather than $160,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at $120,000. 200 PRICE (Thousands of dollars par fra angine) 36885 5 5 5 5 100 120 Domand Ravanua Last + Ravanua Ganad 0 D 1 2 3 4 6 7 B 9 10 QUANTITY (F angines) Raphael increase production from 5 to 6 fire engines, because revenue gained is than revenue lost in this scenario. True or False: If Raphael's Fire Engines were a competitive firm instead and $160,000 were the market price for an engine, decreasing its price from $160,000 to $120,000 would result in an increase in production quantity and total revenue. True False
Chapter14: Monopoly
Section: Chapter Questions
Problem 14.13P
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Transcribed Image Text:5
3. The components of marginal revenue
Raphael's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Raphael produced five fire engines, but he has
decided to increase production to six fire engines. The following graph shows the demand curve Raphael faces. As you can see, to sell the additional
engine, Raphael must lower his price from $160,000 to $120,000 per fire engine. Note that although Raphael gains revenue from the additional engine
he sells, he also loses revenue from the initial five 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 five engines by selling at $120,000 rather
than $160,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine
at $120,000.
200
PRICE (Thousands of dollars par fra angine)
36885 5 5 5 5
100
120
Domand
Ravanua Last
+
Ravanua Ganad
0
D
1
2
3
4
6
7
B
9
10
QUANTITY (F angines)
Raphael
increase production from 5 to 6 fire engines, because revenue gained is
than revenue lost in this scenario.
True or False: If Raphael's Fire Engines were a competitive firm instead and $160,000 were the market price for an engine, decreasing its price from
$160,000 to $120,000 would result in an increase in production quantity and total revenue.
True
False
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