Andrew's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Andrew produced four fire engines, but he has decided to increase production to five fire engines. The following graph shows the demand curve Andrew faces. As you can see, to sell the additional engine, Andrew must lower his price from $105,000 to $90,000 per fire engine. Note that although Andrew gains revenue from the additional engine he sells, he also loses revenue from the initial four 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 four engines by selling at $90,000 rather than $105,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at $90,000. PRICE (Thousands of dollars per fire engine) 150 135 120 105 90 75 60 45 30 15 0 0 Andrew 1 2 Demand 3 True False + 4 6 6 7 QUANTITY (Fire engines) 8 9 10 X]X Revenue Lost Revenue Gained increase production from 4 to 5 fire engines, because revenue gained is than revenue lost in this scenario. True or False: If Andrew's Fire Engines were a competitive firm instead and $105,000 were the market price for an engine, increasing its production would not affect the price at which it can sell engines.
Andrew's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Andrew produced four fire engines, but he has decided to increase production to five fire engines. The following graph shows the demand curve Andrew faces. As you can see, to sell the additional engine, Andrew must lower his price from $105,000 to $90,000 per fire engine. Note that although Andrew gains revenue from the additional engine he sells, he also loses revenue from the initial four 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 four engines by selling at $90,000 rather than $105,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at $90,000. PRICE (Thousands of dollars per fire engine) 150 135 120 105 90 75 60 45 30 15 0 0 Andrew 1 2 Demand 3 True False + 4 6 6 7 QUANTITY (Fire engines) 8 9 10 X]X Revenue Lost Revenue Gained increase production from 4 to 5 fire engines, because revenue gained is than revenue lost in this scenario. True or False: If Andrew's Fire Engines were a competitive firm instead and $105,000 were the market price for an engine, increasing its production would not affect the price at which it can sell engines.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Andrew's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially,
Andrew produced four fire engines, but he has decided to increase production to five fire engines.
The following graph shows the demand curve Andrew faces. As you can see, to sell the additional
engine, Andrew must lower his price from $105,000 to $90,000 per fire engine. Note that although
Andrew gains revenue from the additional engine he sells, he also loses revenue from the initial
four 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 four engines by selling at $90,000 rather than $105,000. Then use the green rectangle
(triangle symbols) to shade the area representing the revenue gained from selling an additional
engine at $90,000.
PRICE (Thousands of dollars per fire engine)
150
135
120
105
90
75
60
45
30
15
0
+
0
Andrew
1
2
+
3
True
o False
Demand
+
4
5
6
QUANTITY (Fire engines)
7
8
9
10
Revenue Lost
Revenue Gained
?
increase production from 4 to 5 fire engines, because revenue gained is
than revenue lost in this scenario.
True or False: If Andrew's Fire Engines were a competitive firm instead and $105,000 were the
market price for an engine, increasing its production would not affect the price at which it can sell
engines.
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