3. The components of marginal revenue Bob\'s Fire Engines is the sole seller of
ID: 1111845 • Letter: 3
Question
3. The components of marginal revenue
Bob's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Bob produced three fire engines, but he has decided to increase production to four fire engines. The following graph shows the demand curve Bob faces. As you can see, to sell the additional engine, Bob must lower his price from $125,000 to $75,000 per fire engine. Note that while Bob gains revenue from the additional engine he sells, he also loses revenue from the initial three engines because he sells them all at the lower price.
Please Let Me Know If My Answer Options are right thank you
3. The components of marginal revenue
Bob's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Bob produced three fire engines, but he has decided to increase production to four fire engines. The following graph shows the demand curve Bob faces. As you can see, to sell the additional engine, Bob must lower his price from $125,000 to $75,000 per fire engine. Note that while Bob gains revenue from the additional engine he sells, he also loses revenue from the initial three engines because he sells them all at the lower price.
Please Let Me Know If My Answer Options are right thank you
3. The components of marginal revenue Bob's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Bob produced three fire engines, but he has decided to increase production to four fire engines. The following graph shows the demand curve Bob faces. As you can see, to sell the additional engine, Bob must lower his price from $125,000 to $75,000 per fire engine. Note that while Bob gains revenue from the additional engine he sells, he also loses revenue from the initial three 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 three engines by selling at $75,000 rather than $125,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from seling an additional engine at $75,000. Revenue Lost 175 sa 150 125 Revenue Gained DemandExplanation / Answer
All options are correct
Increase in quantity does not compensate for the revenue lost due to decrease in price level.
Price effect dominates and Bob should not increase production from 3 to 4 fire engines.
The statement is false. (Bob would lose the entire demand to his competitors, he is a price taker)
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