Musashi's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Musashi produced four fire engines, but he has decided to Increase production to five fire engines. The following graph shows the demand curve Musashi faces. As you can see, to sell the additional engine, Musashi must lower his price from $105,000 to $90,000 per fire engine, Note that while Musashi 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. 150 135 120 Revenue Lost Demand Revenue Gained 60 30 QUANTITY (Fre engines) Musashi Increase production from 4 to 5 fire engines because the v dominates in this scenario True or False If Musash's Fire Engines were a competitive firm instead and $105,000 were the market price for an engine, increasing its production would not affect the price at which he can sell engines. O True O False PRICE (Thousands of dolars per fre engine)
Musashi's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Musashi produced four fire engines, but he has decided to Increase production to five fire engines. The following graph shows the demand curve Musashi faces. As you can see, to sell the additional engine, Musashi must lower his price from $105,000 to $90,000 per fire engine, Note that while Musashi 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. 150 135 120 Revenue Lost Demand Revenue Gained 60 30 QUANTITY (Fre engines) Musashi Increase production from 4 to 5 fire engines because the v dominates in this scenario True or False If Musash's Fire Engines were a competitive firm instead and $105,000 were the market price for an engine, increasing its production would not affect the price at which he can sell engines. O True O False PRICE (Thousands of dolars per fre engine)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Musashi's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Musashi produced four fire engines, but he has
decided to Increase production to five fire engines. The following graph shows the demand curve Musashi faces. As you can see, to sell the additional
engine, Musashi must lower his price from $105,000 to $90,000 per fire engine, Note that while Musashi 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.
135
120
Revenue Lost
Demand
to
Revenue Gained
75
45
30
10
QUANTITY (Fire engines)
Musashi
Increase production from 4 to 5 fre engines because the
v dominates in this scenario.
True or False If Musashi's Fire Engines were a competitive firm instead and $105,000 were the market price for an engine, increasing its production
would not affect the price at which he can sell engines.
O True
O False
PRICE (Thousands of dollars per fire engine)
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