Answer Happy

2. The components of marginal revenue Lorenzo's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Lorenzo produced five fire engines, but he is considering increasing production to six fire engines. The following graph shows the demand curve Lorenzo faces. As you can see, to sell the additional engine, Lorenzo must lower his price from $150,000 to $120,000 per fire engine. Note that although Lorenzo would gain revenue from the additional engine he sells, he would also lose revenue from the initial five engines because he would have to sell 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. 200 100 Demand Revenue Lost ?

Asst # 8 (Ch 09) PRICE (Thousands of dollars per fire engine) 8 8 8 8 8 8 8 200 180 100+ 140 120 100 + 60 40 20 0 0 1 2 Demand 4 5 6 7 QUANTITY (Fire engines) 3 8 0 10 Revenue Lost Revenue Gained ?

PRICE (T 29 0 O Lorenzo 1 2 3 5 7 QUANTITY (Fire engines) B increase production from 5 to 6 fire engines, because the True or False: If Lorenzo's Fire Engines were a competitive firm instead and $160,000 were the market price for an engine, increasing its production would not affect the price at which it can sell engines. O True O False dominates in this scenario. Grade It Now Save & Continue