Femi's HookNLadder is the only company selling fire engines in the fictional country of Alexandrina. Femi initially produced three trucks, but then decided to increase production to four 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 $125,000 to $75,000 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 three 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 three engines by selling at $75,000 rather than $125,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at $75,000. PRICE (Thousands of dollars per fire engine) Femi 275 250 225 200 175 150 2 Demand 125 100 75 50 25 0 + 0 1 2 3 4 5 6 7 8 9 10 QUANTITY (Fire engines) Revenue Lost Revenue Gained increase production from 3 to 4 fire engines because the dominates in this scenario. True or False: If alternatively Femi's HookNLadder were a competitive firm and $125,000 were the market price for an engine, decreasing its price from $125,000 to $75,000 would result in a decrease in the production quantity, but an increase in total revenue. True False
Femi's HookNLadder is the only company selling fire engines in the fictional country of Alexandrina. Femi initially produced three trucks, but then decided to increase production to four 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 $125,000 to $75,000 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 three 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 three engines by selling at $75,000 rather than $125,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at $75,000. PRICE (Thousands of dollars per fire engine) Femi 275 250 225 200 175 150 2 Demand 125 100 75 50 25 0 + 0 1 2 3 4 5 6 7 8 9 10 QUANTITY (Fire engines) Revenue Lost Revenue Gained increase production from 3 to 4 fire engines because the dominates in this scenario. True or False: If alternatively Femi's HookNLadder were a competitive firm and $125,000 were the market price for an engine, decreasing its price from $125,000 to $75,000 would result in a decrease in the production quantity, but an increase in total revenue. True False
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Femi's HookNLadder is the only company selling fire engines in the fictional country of Alexandrina. Femi initially produced three trucks, but then
decided to increase production to four 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 $125,000 to $75,000 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 three 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 three engines by selling at $75,000 rather
than $125,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine
at $75,000.
PRICE (Thousands of dollars per fire engine)
Femi
275
250
225
200
175
150
2
Demand
125
100
75
50
25
0
+
0
1
2
3 4 5 6
7
8
9
10
QUANTITY (Fire engines)
Revenue Lost
Revenue Gained
increase production from 3 to 4 fire engines because the
dominates in this scenario.
True or False: If alternatively Femi's HookNLadder were a competitive firm and $125,000 were the market price for an engine, decreasing its price
from $125,000 to $75,000 would result in a decrease in the production quantity, but an increase in total revenue.
True
False
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