Question

3. The components of marginal revenue Dmitri's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Dmitri produced five fire engines, but he has decided to increase production to six fire engines. The following graph shows the demand curve Dmitri faces. As you can see, to sell the additional engine, Dmitri must lower his price from $160,000 to $120,000 per fire engine. Note that while Dmitri 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. Demand Revenue Lost Revenue Gained PRICE (Thousands of dollars per fire engine) + 0 1 2 8 9 10 3 4 5 6 7 QUANTITY (Fire engines) Dmitri increase production from 5 to 6 fire engines because the dominates in this scenario. True or False: If Dmitri'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 the same change in the production quantity and, thus, total revenue.

Answer 1

Demand Revenue Lost Revenue Gained PRICE (Thousands of dollars per fire engine) 0 1 2 8 9 10 3 4 5 6 7 QUANTITY (Fire engines)

Blanks-

1) Should not

2) price effect

The statement is False