Alex's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Alex produced eight fire engines, but he has decided to increase production to nine fire engines. The following graph shows the demand curve Alex faces. As you can see, to sell the additional engine, Alex must lower his price from $80,000 to $40,000 per fire engine. Note that while Alex gains revenue from the additional engine he sells, he also loses revenue from the initial eight 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 eight engines by selling at $40,000 rather than $80,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at $40,000.

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
icon
Related questions
Question
Alex's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Alex produced eight fire engines, but he has decided
to increase production to nine fire engines. The following graph shows the demand curve Alex faces. As you can see, to sell the additional engine, Alex
must lower his price from $80,000 to $40,000 per fire engine. Note that while Alex gains revenue from the additional engine he sells, he also loses
revenue from the initial eight 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 eight engines by selling at $40,000 rather
than $80,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at
$40,000.
200
180
Revenue Lost
160
140
120
Revenue Gained
100
Demand
80
60
40
20
1
2
3
5
6
7
8
9
10
QUANTITY (Fire engines)
Alex
increase production from 8 to 9 fire engines because the
dominates in this scenario.
True or False: If Alex's Fire Engines were a competitive firm instead and $80,000 were the market price for an engine, increasing its production would
not affect the price at which he can sell engines.
True
False
PRICE (Thousands of dollars per fire engine)
Transcribed Image Text:Alex's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Alex produced eight fire engines, but he has decided to increase production to nine fire engines. The following graph shows the demand curve Alex faces. As you can see, to sell the additional engine, Alex must lower his price from $80,000 to $40,000 per fire engine. Note that while Alex gains revenue from the additional engine he sells, he also loses revenue from the initial eight 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 eight engines by selling at $40,000 rather than $80,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at $40,000. 200 180 Revenue Lost 160 140 120 Revenue Gained 100 Demand 80 60 40 20 1 2 3 5 6 7 8 9 10 QUANTITY (Fire engines) Alex increase production from 8 to 9 fire engines because the dominates in this scenario. True or False: If Alex's Fire Engines were a competitive firm instead and $80,000 were the market price for an engine, increasing its production would not affect the price at which he can sell engines. True False PRICE (Thousands of dollars per fire engine)
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps with 1 images

Blurred answer
Knowledge Booster
Substitute Goods
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education