Kevin's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Kevin produced eight fire engines, but he is considering increasing production to nine fire engines. The following graph shows the demand curve Kevin faces. As you can see, to sell the additional engine, Kevin must lower his price from $100,000 to $80,000 per fire engine. Note that although Kevin would gain revenue from the additional engine he sells, he would also lose revenue from the initial eight engines because he would have to sell them all at the lovwer price. Use the purple rectangle (diamond symbols) to shade the area representing the revenue lost from the initial eight engines by selling at $80,000 rather than $100,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at $80,000. 200 180 Revenue Lost 160 140 120 Revenue Gained Demand 100 80 60 40 20 1 2 3 4 5 6 10 QUANTITY (Fire engines) increase production from 8 to 9 fire engines, because the dominates in this scenario. Kevin True or False: If Kevin's Fire Engines were a competitive firm instead and $100,000 were the market price for an engine, increasing its production would not affect the price at which it can sell engines. True False PRICE (Thousands of dollars per fire engine)
Kevin's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Kevin produced eight fire engines, but he is considering increasing production to nine fire engines. The following graph shows the demand curve Kevin faces. As you can see, to sell the additional engine, Kevin must lower his price from $100,000 to $80,000 per fire engine. Note that although Kevin would gain revenue from the additional engine he sells, he would also lose revenue from the initial eight engines because he would have to sell them all at the lovwer price. Use the purple rectangle (diamond symbols) to shade the area representing the revenue lost from the initial eight engines by selling at $80,000 rather than $100,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at $80,000. 200 180 Revenue Lost 160 140 120 Revenue Gained Demand 100 80 60 40 20 1 2 3 4 5 6 10 QUANTITY (Fire engines) increase production from 8 to 9 fire engines, because the dominates in this scenario. Kevin True or False: If Kevin's Fire Engines were a competitive firm instead and $100,000 were the market price for an engine, increasing its production would not affect the price at which it can sell engines. True False PRICE (Thousands of dollars per fire engine)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Kevin's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Kevin produced eight fire engines, but he is
considering increasing production to nine fire engines. The following graph shows the demand curve Kevin faces. As you can see, to sell the additional
engine, Kevin must lower his price from $100,000 to $80,000 per fire engine. Note that although Kevin would gain revenue from the additional engine
he sells, he would also lose revenue from the initial eight engines because he would have to sell them all 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 $80,000 rather
than $100,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine
at $80,000.
200
180
Revenue Lost
160
140
120
Revenue Gained
Demand
100
80
60
40
20
3 4 5 6
QUANTITY (Fire engines)
7
9
10
Kevin
increase production from 8 to 9 fire engines, because the
dominates in this scenario.
True or False: If Kevin's Fire Engines were a competitive firm instead and $100,000 were the market price for an engine, increasing its production
would not affect the price at which it can sell engines.
True
False
PRICE (Thousands of dollars per fire engine)
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