decided to increase production to five trucks. The following graph gives the demand curve faced by Femi's HookNLadder. As the graph shows, in order to sell the additional fire truck, Femi must lower the price from $105,000 to $90,000 per truck. Notice that Femi gains revenue from the sale of the additional engine, but at the same time, he loses revenue from the initial four engines because they are all sold 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. PRICE (Thousands of dollars per fire engine) Femi 165 150 135 120 105 90 75 60 45 30 15 0 0 1 + 2 Demand 6 3 4 5 QUANTITY (Fire engines) 7 8 9 10 Revenue Lost Revenue Gained increase production from 4 to 5 fire engines because the dominates in this scenario. True or False: If alternatively Femi's HookNLadder were a competitive firm and $105,000 were the market price for an engine, increasing production would not affect the price at which the company is able to sell engines. O True
decided to increase production to five trucks. The following graph gives the demand curve faced by Femi's HookNLadder. As the graph shows, in order to sell the additional fire truck, Femi must lower the price from $105,000 to $90,000 per truck. Notice that Femi gains revenue from the sale of the additional engine, but at the same time, he loses revenue from the initial four engines because they are all sold 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. PRICE (Thousands of dollars per fire engine) Femi 165 150 135 120 105 90 75 60 45 30 15 0 0 1 + 2 Demand 6 3 4 5 QUANTITY (Fire engines) 7 8 9 10 Revenue Lost Revenue Gained increase production from 4 to 5 fire engines because the dominates in this scenario. True or False: If alternatively Femi's HookNLadder were a competitive firm and $105,000 were the market price for an engine, increasing production would not affect the price at which the company is able to sell engines. O True
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Femi _______ increase production from 4 to 5 fire engines because the _______ dominates in this scenario.
Blank 1 options:
should
should not
Blank 2 options:
output effect
price effect
Transcribed Image Text:Femi's HookNLadder is the only company selling fire engines in the fictional country of Alexandrina. Femi initially produced four trucks, but then
decided to increase production to five trucks. The following graph gives the demand curve faced by Femi's HookNLadder. As the graph shows, in order
to sell the additional fire truck, Femi must lower the price from $105,000 to $90,000 per truck. Notice that Femi gains revenue from the sale of the
additional engine, but at the same time, he loses revenue from the initial four engines because they are all sold 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.
PRICE (Thousands of dollars per fire engine)
Femi
165
150
135
120
105
90
75
60
45
30
15
0 + + +
0
1 2
True
Demand
False
3 4 5 6 7
QUANTITY (Fire engines)
8
9
10
Revenue Lost
Revenue Gained
increase production from 4 to 5 fire engines because the
(?)
True or False: If alternatively Femi's HookNLadder were a competitive firm and $105,000 were the market price for an engine, increasing production
would not affect the price at which the company is able to sell engines.
dominates in this scenario.
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