200180Revenue Lost160140120Revenue Gained100Demand80604020++1357810QUANTITY (Fire engines)Manuelincrease production from 8 to 9 fire engines because thedominates in this scenario.PRICE (Thousands of dollars per fire engine) True or False: If Manuel'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.TrueFalse

Increasing the production has two effects, i.e., output effect and price effect. There is a need to decrease the price in order to sell additional unit of output. Output effect: Higher the production leads to increase in revenue Price effect: Lower prices (due to increase in production) leads to decrease in revenue. --------------------- If output effect > price effect, then firm should increase the production If output effect < price effect, then firm should decrease the production --------------------- Manuel should not increase the production from 8 to 9 fire engines because price effect dominates in this scenario. FALSE: If Manuel'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

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Economics

200 180 Revenue Lost 160 140 120 Revenue Gained 100 Demand 80 60 40 20 1 2 3 4 6 7 8 9 10 QUANTITY (Fire engines) Manuel increase production from 8 to 9 fire engines because the dominates in this scenario. PRICE (Thousands of dollars per fire engine)

200 180 Revenue Lost 160 140 120 Revenue Gained 100 Demand 80 60 40 20 1 2 3 4 6 7 8 9 10 QUANTITY (Fire engines) Manuel increase production from 8 to 9 fire engines because the dominates in this scenario. 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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