Jake's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Jake produced four fire engines, but he has decided to increase production to five fire engines. The following graph shows the demand curve Jake faces. As you can see, to sell the additional engine, Jake must lower his price from $105,000 to $90,000 per fire engine. Note that while Jake 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) shade the area representing the revenue gained from selling an additional engine at $90,000. (?) 150 135 Revenue Lost 120 Demand 106 + Revenue Gained PRICE (Thousands of dollars per fire engine) 75 45 15 5 R 7 9 10 QUANTITY (Fire engines) Jake ▼ increase production from 4 to 5 fire engines because the dominates in this scenario. True or False: If Jake'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. O True O False 0 4 2 8
Jake's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Jake produced four fire engines, but he has decided to increase production to five fire engines. The following graph shows the demand curve Jake faces. As you can see, to sell the additional engine, Jake must lower his price from $105,000 to $90,000 per fire engine. Note that while Jake 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) shade the area representing the revenue gained from selling an additional engine at $90,000. (?) 150 135 Revenue Lost 120 Demand 106 + Revenue Gained PRICE (Thousands of dollars per fire engine) 75 45 15 5 R 7 9 10 QUANTITY (Fire engines) Jake ▼ increase production from 4 to 5 fire engines because the dominates in this scenario. True or False: If Jake'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. O True O False 0 4 2 8
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Jake's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Jake produced four fire engines, but he has decided to
increase production to five fire engines. The following graph shows the demand curve Jake faces. As you can see, to sell the additional engine, Jake
must lower his price from $105,000 to $90,000 per fire engine. Note that while Jake 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) shade the area representing the revenue gained from selling an additional engine
at $90,000.
(?)
150
135
Revenue Lost
120
Demand
106
+
Revenue Gained
PRICE (Thousands of dollars per fire engine)
75
45
15
5
R
7
9
10
QUANTITY (Fire engines)
Jake
▼ increase production from 4 to 5 fire engines because the
dominates in this scenario.
True or False: If Jake'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.
O True
O False
0
4
2
8
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