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 while 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. NOTE: options to blanks are Charles _______(should or should not) increase production from 4 to 5 fire engines because the ______(price effect or output effect) dominates in this scenario.
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 while 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. NOTE: options to blanks are Charles _______(should or should not) increase production from 4 to 5 fire engines because the ______(price effect or output effect) dominates in this scenario.
MATLAB: An Introduction with Applications
6th Edition
ISBN:9781119256830
Author:Amos Gilat
Publisher:Amos Gilat
Chapter1: Starting With Matlab
Section: Chapter Questions
Problem 1P
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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 while 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.
NOTE: options to blanks are
Charles _______(should or should not) increase production from 4 to 5 fire engines because the ______(price effect or output effect) dominates in this scenario.
Transcribed Image Text: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 while 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.
150
135
Revenue Lost
120
Demand
105
90
Revenue Gained
75
60
45
30
15
2
3
4
5
6
7
8
10
QUANTITY (Fire engines)
Charles
increase production from 4 to 5 fire engines because the
dominates in this scenario.
True or False: If Charles'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 a decrease in the production quantity, but an increase in total revenue.
True
False
PRICE (Thousands of dollars per fire engine)
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