1. Price and output in a competitive price-searcher market Consider a price-searching firm, Sean's Fire Engines, which sells fire engines in the fictional country of Pyrotania. Initially, Sean's produced seven fire engines but then decided to increase production to eight fire engines. The following graph shows the demand curve the firm faces. To sell the additional engine, Sean's must lower its price from $100,000 to $50,000 per engine. (Hint: Sean's Fire Engines gains revenue from the additional engine it sells, but it also loses revenue from the initial seven engines because it sells them all at the lower price.) On the following graph, use the purple rectangle (diamond symbols) to shade the area representing the revenue lost from the initial seven engines by selling at $50,000 rather than $100,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at $50,000. CE (Thousands of dollars per fire engine) 250 225 200 175 150 125 100 25 50 Demand *|*| Revenue Lost Revenue Gained

1. Price and output in a competitive price-searcher market Consider a price-searching firm, Sean's Fire Engines, which sells fire engines in the fictional country of Pyrotania. Initially, Sean's produced seven fire engines but then decided to increase production to eight fire engines. The following graph shows the demand curve the firm faces. To sell the additional engine, Sean's must lower its price from $100,000 to $50,000 per engine. (Hint: Sean's Fire Engines gains revenue from the additional engine it sells, but it also loses revenue from the initial seven engines because it sells them all at the lower price.) On the following graph, use the purple rectangle (diamond symbols) to shade the area representing the revenue lost from the initial seven engines by selling at $50,000 rather than $100,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at $50,000. CE (Thousands of dollars per fire engine) 250 225 200 175 150 125 100 25 50 Demand || Revenue Lost Revenue Gained

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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Question

Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism.

Sean's Fire Engines
scenario.
True
increase production from seven to eight fire engines because the change in
True or False: If Sean's Fire Engines were a price-taking firm instead, and $100,000 were the market price for an engine, lowering its price from
$100,000 to $50,000 would result in the same change in the production quantity and, thus, total revenue.
False
dominates in this

1. Price and output in a competitive price-searcher market
Consider a price-searching firm, Sean's Fire Engines, which sells fire engines in the fictional country of Pyrotania. Initially, Sean's produced seven fire
engines but then decided to increase production to eight fire engines. The following graph shows the demand curve the firm faces. To sell the
additional engine, Sean's must lower its price from $100,000 to $50,000 per engine. (Hint: Sean's Fire Engines gains revenue from the additional
engine it sells, but it also loses revenue from the initial seven engines because it sells them all at the lower price.)
On the following graph, use the purple rectangle (diamond symbols) to shade the area representing the revenue lost from the initial seven engines by
selling at $50,000 rather than $100,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from
selling an additional engine at $50,000.
250
225
PRICE (Thousands of dollars per fire engine)
83
200
175
150
125
100
25
0
1
2
3 4
"
QUANTITY (Fire engines)
Demand
Revenue Lost
Revenue Gained

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