Carlos's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Carlos produced four fire engines, but he has decided to increase production to five fire engines. The following graph shows the demand curve Carlos faces. As you can see, to sell the additional engine, Carlos must lower his price from $105,000 to $90,000 per fire engine. Note that while Carlos 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) 150 135 120 106 90 75 60 45 30 15 0 Carlos 0 1 True 2 False 3 Demand + 7 5 6 4 QUANTITY (Fire engines) 8 9 10 Revenue Lost Revenue Gained increase production from 4 to 5 fire engines because the ? True or False: If Carlos's Fire Engines were a competitive firm instead and $105,000 were the market price for an engine, decreasing its price from $105,000 to $90,000 would result in the same change in the production quantity and, thus, total revenue. dominates in this scenario.
Carlos's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Carlos produced four fire engines, but he has decided to increase production to five fire engines. The following graph shows the demand curve Carlos faces. As you can see, to sell the additional engine, Carlos must lower his price from $105,000 to $90,000 per fire engine. Note that while Carlos 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) 150 135 120 106 90 75 60 45 30 15 0 Carlos 0 1 True 2 False 3 Demand + 7 5 6 4 QUANTITY (Fire engines) 8 9 10 Revenue Lost Revenue Gained increase production from 4 to 5 fire engines because the ? True or False: If Carlos's Fire Engines were a competitive firm instead and $105,000 were the market price for an engine, decreasing its price from $105,000 to $90,000 would result in the same change in the production quantity and, thus, total revenue. dominates in this scenario.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Carlos's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Carlos produced four fire engines, but he has
decided to increase production to five fire engines. The following graph shows the demand curve Carlos faces. As you can see, to sell the additional
engine, Carlos must lower his price from $105,000 to $90,000 per fire engine. Note that while Carlos 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
106
60
45
15
0 +
Carlos
0 1
True
+
2
False
Demand
+
6
3 4 5
7
QUANTITY (Fire engines)
8
10
Revenue Lost
Revenue Gained
increase production from 4 to 5 fire engines because the
(2)
True or False: If Carlos's Fire Engines were a competitive firm instead and $105,000 were the market price for an engine, decreasing its price from
$105,000 to $90,000 would result in the same change in the production quantity and, thus, total revenue.
dominates in this scenario.
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