Charles's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Charles produced four fire engines, but he has decided to increase production to five fire engines. The following graph shows the demand curve Charles faces. As you can see, to sell the additional engine, Charles must lower his price from $105,000 to $90,000 per fire engine. Note that although Charles 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 1 2 Demand 3 4 5 6 QUANTITY (Fire engines) 7 + 8 9 10 Revenue Lost Revenue Gained (?)

Charles's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Charles produced four fire engines, but he has decided to increase production to five fire engines. The following graph shows the demand curve Charles faces. As you can see, to sell the additional engine, Charles must lower his price from $105,000 to $90,000 per fire engine. Note that although Charles 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 1 2 Demand 3 4 5 6 QUANTITY (Fire engines) 7 + 8 9 10 Revenue Lost Revenue Gained (?)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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