Raphael's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Raphael produced eight fire engines, but he has decided to increase production to nine fire engines. The following graph shows the demand curve Raphael faces. As you can see, to sell the additional engine, Raphael must lower his price from $80,000 to $40,000 per fire engine. Note that while Raphael gains revenue from the additional engine he sells, he also loses revenue from the initial eight engines because he sells them at a 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.**Graph Explanation:**- The graph displays a downward-sloping demand curve, indicated in blue.- The y-axis represents the price in thousands of dollars per fire engine, ranging from $0 to $200.- The x-axis shows the quantity of fire engines, ranging from 0 to 10.- The point at which the demand curve intersects the quantity of 8 fire engines aligns with a price of $80,000.- The new intersection at 9 fire engines aligns with a lowered price of $40,000.- The purple "Revenue Lost" area represents the decrease in revenue from selling the initial eight engines at the reduced price.- The green "Revenue Gained" area represents the additional revenue from selling one more engine at $40,000. ### Demand Curve Analysis for Fire Engines#### Graph Description:- **Axes**: - **X-Axis**: Quantity of fire engines (ranging from 0 to 10). - **Y-Axis**: Price in thousands of dollars per fire engine (ranging from 0 to 200).- **Demand Curve**: - A downward-sloping line showing the relationship between the price and quantity demanded. - Points marked on the curve indicate specific demand levels.- **Revenue Indicators**: - **Purple (Revenue Lost)**: Represents the decrease in revenue due to a lower price. - **Green (Revenue Gained)**: Represents the increase in revenue due to a higher quantity sold.#### Analysis:- **Scenario**: - Raphael should increase production from 8 to 9 fire engines because the __ (e.g., marginal benefit or revenue) dominates in this scenario.- **Question**: - *True or False*: If Raphael's Fire Engines were a competitive firm and $80,000 were the market price for an engine, decreasing its price from $80,000 to $40,000 would result in a decrease in the production quantity, but an increase in total revenue. - Options: - True - False

The graph below shows the purple shaded region which shows the loss in revenue due to a reduction in…

Raphael increase production from 8 to 9 fire engines because the dominates in this scenario. True or False: If Raphael's Fire Engines were a competitive firm instead and $80,000 were the market price for an engine, decreasing its price from $80,000 to $40,000 would result in a decrease in the production quantity, but an increase in total revenue. True False

Raphael increase production from 8 to 9 fire engines because the dominates in this scenario. True or False: If Raphael's Fire Engines were a competitive firm instead and $80,000 were the market price for an engine, decreasing its price from $80,000 to $40,000 would result in a decrease in the production quantity, but an increase in total revenue. True False

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

7. Price and output in a competitive price-searcher market Consider a price-searching firm, Sean's Fire Engines, which sells fire engines in the fictional country of Pyrotania. Initially, Sean's produced eight fire engines but then decided to increase production to nine fire engines. The following graph shows the demand curve the firm faces. To sell the additional engine, Sean's must lower its price from $80,000 to $40,000 per engine. (Hint: Sean's Fire Engines gains revenue from the additional engine it sells, but it also loses revenue from the initial eight engines because it sells them all at the lower price.) On the following graph, 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)…
Economic theory would suggest that the profitability of an industry would be O inversely related to the number of firms competing in the industry. O unrelated to the number of firms competing in the industry. O zero in the long run, regardless of market structure. O directly related to the number of firms competing in the industry.
Price 0 52 * S" Quantity Refer to Figure 3-8. The graph in this figure illustrates an initial competitive equilibrium in the market for motorcycles at the intersection of D2 and 52 (point E). If the technology to produce motorcycles improves and the number of buyers increases, how will the equilibrium point change? O The equilibrium point will move from E to B. O The equilibrium point will move from E to C. The equilibrium point will move from E to A. The equilibrium point will remain at E.
Profit is the incentive that drives our market economy. Firms make production, pricing, andhiring decisions based on their quest for profit. But what happens when a firm discoversthat it can make dramatically higher profits by stopping production altogether? In December2000, due to wild swings in the market for electricity, Kaiser Aluminium faced just such adecision.Kaiser Aluminium had contracted with Bonneville power for all of its electricity needs andfound itself in the unique position of being an electricity consumer and, potentially, anelectricity reseller. By December 2000, Kaiser faced a difficult decision of continuing itscurrent aluminium production and profit levels, or closing the plant to dramatically increaseits profit by simply reselling its electricity.When making production decisions, firms must consider both their costs and revenues. Oneimportant concern for many firms is utility costs. In 1996, Kaiser Aluminium Corporation inSpokane, Washington, entered into a…
4. A printer paper manufacturer sells its highly standardized product in a perfectly competitive market, at a price of TL50 per box. The firm has a fixed cost of TL30. Fill in the following table and indicate the level of output that maximizes profit. Determine how the profit-maximizing choice of output would change if the fixed cost increased from TL40 to TL60? More generally, explain how the level of fixed cost affects the choice of output. Output (Units) 0 1 2 3 4 5 6 Total Revenue (TL/unit) Total Cost (TL/unit) Profit (TL) Marginal Revenue (TL/unit) Marginal Cost (TL/unit) 50 20 30 42 54 70
Q4) Answer the following, providing a graphical illustration along with your answer where necessary: a) What is the profit maximising condition? b) Explain what is meant by abnormal profit? What is the adjustment process from short-run abnormal profit to long-run equilibrium in a perfectly competitive market? c) Please find below Pricing options for firm A and B, along with individual payoffs (Firm A's payoff/Firm B's payoff) Firm A Price £2 Price £1 Assume you are the pricing manager at Firm A; i) ii) Price £2 £10,000/£10,000 £12,000/£5,000 Firm B Price £1 £5,000/£12,000 £6,000/£6,000 What is your payoff for a 'maximin' strategy? What is your payoff for a 'maximax' strategy? Does a dominant strategy exist within this prisoners' dilemma?
1) If a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenue: 2) A firm that is motivated by self interest should 3) If price is above the equilibrium level, competition among sellers to reduce the resulting 4) Camille's Creations and Julia's Jewels both sell beads in a competitive market. If at the market price of $5, both are running out of beads to sell (they can't keep up with the quantity demanded at that price), then we would expect both Camille's and Julia's to 5) Since their introduction, prices of DVD players have fallen and the quantity purchased has increased. This statement 6) In a market economy the distribution of output will be determined primarily by 7) In a competitive market economy firms will select the least-cost production technique because 8) Suppose that the price of peanuts falls from $3 to $2 per bushel and that, as a result, the total revenue received by peanut…
er 11 i Suppose the market for corn is a purely competitive, constant-cost industry that is in long-run equilibrium. Now assume that an increase in consumer demand occurs. After all resulting adjustments have been completed, the new equilibrium price will be Multiple Choice OO O the same as the initial equilibrium price, but the new industry output will be greater than the original output. greater than the initial price, and the new industry output will be greater than the original output. less than the initial price, but the new industry output will be greater than the original output. the same as the initial equilibrium price, and the industry output will remain unchanged. 23 11,229 X OCT all Z A
1.0 - If the demand forApple Cinnamon Cheerios decreases at all prices, what will happen to thedemand curve? Show the shift in the demand curve on the same diagram and explain what happensto the firm’s output and profits.
All information is included
10. Given a qmes = 100 and a minimum long-run average total cost of $2. (a) If the quantity demanded at p = $2 is 10, 000. How many firms can enter the market and at least break-even? (b) If technology gets better and reduces the minimum long-run average total cost of $1 and increases qmes = 9,000. At p = $1 the quantity demanded is 14, 000. How many firms || can enter the market and at least break-even? What market structure will describe this market better, perfect competition or monopoly?
sub= 24 help