*4. Consider the demand curve for otter food shown below: a. Indicate the area representing the total...
Question:
*4. Consider the demand curve for otter food shown below:
a. Indicate the area representing the total revenue Oscar the otter food seller would receive if he chose a price of $6.
b. On the same graph, indicate the area representing the total revenue Oscar the seller would receive if he chose a price of $5.
c. You should now have added two rectangles to your graph; however, because of some overlap, it actually appears that you’ve added three.
One of the three is common to both scenarios above. The other two (smaller) rectangles are specific to scenario
(a) or scenario (b). Label each rectangle with “A,” “B,” or “both” to indicate which scenario each rectangle belongs to.
d. Indicate what happens (gain or loss) to rectangle A as Oscar reduces his price from $6 to $5. Why?
e. Indicate what happens (gain or loss) to rectangle B as Oscar reduces his price from $6 to $5. Why?
f. Calculate the area of rectangle A and the area of rectangle B. Then, subtract the area of A from the area of B.
g. Calculate the marginal revenue Oscar receives when he sells a 4th unit. Does your answer agree with the number you calculated in (f)? Explain.
Step by Step Answer:
Microeconomics
ISBN: 9780716759751
1st Edition
Authors: Austan Goolsbee, Steven Levitt, Chad Syverson