Femi's Hook NLadder is the only company selling fire engines in the fictional country of Alexandrina. Femi initially produced eight trucks, but then decided to increase production to nine trucks. The following graph gives the demand curve faced by Femi's HookNLadder. As the graph shows, in order to sell the additional fire truck, Femi must lower the price from $80,000 to $40,000 per truck. Notice that Femi gains revenue from the sale of the additional engine, but at the same time, he loses revenue from the initial eight engines because they are all sold 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. PRICE (Thousands of dollars per fire engine) 220 200 180 160 140 120 100 BO 60 40 20 1 2 6 6 7 QUANTITY (Fire engines) 8 Demand 10 Revenue Lost Revenue Gained PRICE (Thousands of dollars per fire engine) 200 180 160 140 120 100 80 229 2 60 40 20 0 0 1 Femi should not True 2 O False 7 3 4 5 6 QUANTITY (Fire engines) " Demand 10 Revenue Lost increase production from 8 to 9 fire engines because the price effect should True ternatively Femi's HookNLadder were a competitive firm and $80,000 were the market price for an engine, decreasing its price from $80, should not would result in the same change in the production quantity and, thus, total revenue. Revenue Gained dominates in this scenario.
Femi's Hook NLadder is the only company selling fire engines in the fictional country of Alexandrina. Femi initially produced eight trucks, but then decided to increase production to nine trucks. The following graph gives the demand curve faced by Femi's HookNLadder. As the graph shows, in order to sell the additional fire truck, Femi must lower the price from $80,000 to $40,000 per truck. Notice that Femi gains revenue from the sale of the additional engine, but at the same time, he loses revenue from the initial eight engines because they are all sold 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. PRICE (Thousands of dollars per fire engine) 220 200 180 160 140 120 100 BO 60 40 20 1 2 6 6 7 QUANTITY (Fire engines) 8 Demand 10 Revenue Lost Revenue Gained PRICE (Thousands of dollars per fire engine) 200 180 160 140 120 100 80 229 2 60 40 20 0 0 1 Femi should not True 2 O False 7 3 4 5 6 QUANTITY (Fire engines) " Demand 10 Revenue Lost increase production from 8 to 9 fire engines because the price effect should True ternatively Femi's HookNLadder were a competitive firm and $80,000 were the market price for an engine, decreasing its price from $80, should not would result in the same change in the production quantity and, thus, total revenue. Revenue Gained dominates in this scenario.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Transcribed Image Text:Femi's Hook NLadder is the only company selling fire engines in the fictional country of Alexandrina. Femi initially produced eight trucks, but then
decided to increase production to nine trucks. The following graph gives the demand curve faced by Femi's HookNLadder. As the graph shows, in order
to sell the additional fire truck, Femi must lower the price from $80,000 to $40,000 per truck. Notice that Femi gains revenue from the sale of the
additional engine, but at the same time, he loses revenue from the initial eight engines because they are all sold 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.
PRICE (Thousands of dollars per fire engine)
220
200
180
160
140
120
100
BO
60
40
20
1
2
6 6
7
QUANTITY (Fire engines)
8
Demand
10
Revenue Lost
Revenue Gained
Transcribed Image Text:PRICE (Thousands of dollars per fire engine)
200
180
160
140
120
100
80
229 2
60
40
20
0
0
1
Femi should not
True
2
O False
7
3 4 5 6
QUANTITY (Fire engines)
"
Demand
10
Revenue Lost
increase production from 8 to 9 fire engines because the price effect
should
True
ternatively Femi's HookNLadder were a competitive firm and $80,000 were the market price for an engine, decreasing its price from
$80, should not would result in the same change in the production quantity and, thus, total revenue.
Revenue Gained
dominates in this scenario.
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