Answered step by step
Verified Expert Solution
Question
1 Approved Answer
3. The components of marginal revenue Omari's HookNLadder is the only company selling fire engines in the fictional country of Alexandrina. Omari initially produced three
3. The components of marginal revenue Omari's HookNLadder is the only company selling fire engines in the fictional country of Alexandrina. Omari initially produced three trucks, but then decided to increase production to four trucks. The following graph gives the demand curve faced by Omari's HookNLadder. As the graph shows, in order to sell the additional fire truck, Omari must lower the price from $70,000 to $50,000 per truck. Notice that Omari gains revenue from the sale of the additional engine, but at the same time, he loses revenue from the initial three engines because they are all sold at the lower price. Use the purple rectangle ( diamond symbols) to shade the area representing the revenue lost from the initial three engines by selling at $50,000 rather than $70,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at $50, 000. PRICE (Thousands of dollars per re engine) 110 100 90 80 70 60 50 40 30 20 10 Demand 3 4 5 6 7 QUANTITY (Fire engines) '10 H Revenue Lost H Revenue Gained Omari should not V increase production from 3 to 4 fire engines because the price effect V dominates in this scenario. True or False: If alternatively Omari's HookNLadder were a competitive firm and $70,000 were the market price for an engine, decreasing its price from $70,000 to $50,000 would result in the same change in the production quantity and, thus, total revenue. True 0 False
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started