Sam's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Sam produced seven fire engines, but he has decided to increase production to eight fire engines. The following graph shows the demand curve Sam faces. As you can see, to sell the additional engine, Sam must lower his price from $100,000 to $50,000 per fire engine. Note that while Sam gains revenue from the additional engine he sells, he also loses revenue from the initial seven 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 seven engines by selling at $50,000 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 $50,000. 250 225 Revenue Lost 200 175 150 Revenue Gained 125 Demand 100 75 50 25 + 1 2 3 4 5 6 7 8 10 QUANTITY (Fire engines) PRICE (Thousands of dollars per fire engine)

Sam's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Sam produced seven fire engines, but he has decided to increase production to eight fire engines. The following graph shows the demand curve Sam faces. As you can see, to sell the additional engine, Sam must lower his price from $100,000 to $50,000 per fire engine. Note that while Sam gains revenue from the additional engine he sells, he also loses revenue from the initial seven 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 seven engines by selling at $50,000 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 $50,000. 250 225 Revenue Lost 200 175 150 Revenue Gained 125 Demand 100 75 50 25 + 1 2 3 4 5 6 7 8 10 QUANTITY (Fire engines) PRICE (Thousands of dollars per fire engine)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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