7. Price and output in a competitive price-searcher marketConsider a price-searching firm, Sean's Fire Engines, which sells fire engines in the fictional country of Pyrotania. Initially, Sean's produced eight fireengines but then decided to increase production to nine fire engines. The following graph shows the demand curve the firm faces. To sell the additionalengine, 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 byselling at $40,000 rather than $80,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained fromselling an additional engine at $40,000.PRICE (Thousands of dollars per fire engine)20018016014012010080604020001+2+3+7456QUANTITY (Fire engines)+8Demand++910Revenue LostRevenue Gained(?) Sean's Fire Enginesscenario.Trueincrease production from eight to nine fire engines because the change inTrue or False: If Sean's Fire Engines were a price-taking firm instead, and $80,000 were the market price for an engine, lowering its price from$80,000 to $40,000 would not result in increased revenue.Falsedominates in this

Monopoly is a market structure in which there a single seller and the monopolist has the ability to…

Sean's Fire Engines scenario. O True increase production from eight to nine fire engines because the change in True or False: If Sean's Fire Engines were a price-taking firm instead, and $80,000 were the market price for an engine, lowering its price from $80,000 to $40,000 would not result in increased revenue. False dominates in this

Sean's Fire Engines scenario. O True increase production from eight to nine fire engines because the change in True or False: If Sean's Fire Engines were a price-taking firm instead, and $80,000 were the market price for an engine, lowering its price from $80,000 to $40,000 would not result in increased revenue. False dominates in this

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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What is a price taker? A price taker is O A. a firm with a downward-sloping demand curve. O B. a firm that is unable to affect the market price. Oc. a firm with a perfectly inelastic demand curve. O D. a firm that has the ability to charge price greater than marginal cost. O E. a firm that does not seek to maximize profits. When are firms likely to be price takers? A firm is likely to be a price taker when O A. it sells a differentiated product. O B. barriers to entry are substantial. OC. it has market power. O D. it represents a small fraction of the total market,. O E. firms in the industry collude.
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