1. 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 six fireengines but then decided to increase production to seven fire engines. The following graph shows the demand curve the firm faces. To sell theadditional engine, Sean's must lower its price from $100,000 to $50,000 per engine. (Hint: Sean's Fire Engines gains revenue from the additionalengine it sells, but it also loses revenue from the initial six 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 six engines byselling at $50,000 rather than $100,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained fromselling an additional engine at $50,000.re engine)250225200Q SearchRevenue LostCol CENGAGE MINDTAPHomeworkPRICE (Thousands of dollars per fire engine)250225200175150125 +100755025001Sean's Fire Engines23Demand456QUANTITY (Fire engines)7Q Search8910Revenue LostRevenue Gainedincrease production from six to seven fire engines because the change inTrue or False: If Sean's Fire Engines were a price-taking firm instead, and $100,000 were the market price for an engine, increasing its productionwould not affect the price at which it could sell engines.wwQ Search this coursemhp▼ dominates in this scenario.KX4)

Demand curve shows an inverse relationship between price and quantity demanded. The price decrease…

15 IGAGE | Homework PRICE (Thousands of dollars per fire engine) 250 225 200 175 150 125 100 + 75 50 4 25 + 0 0 1 Sean's Fire Engines 2 3 4 5 6 QUANTITY (Fire engines) Demand ▶ Q Search 7 8 9 10 Revenue Lost Revenue Gained increase production from six to seven fire engines because the change in True or False: If Sean's Fire Engines were a price-taking firm instead, and $100,000 were the market price for an engine, in would not affect the price at which it could sell engines. M mhp

15 IGAGE | Homework PRICE (Thousands of dollars per fire engine) 250 225 200 175 150 125 100 + 75 50 4 25 + 0 0 1 Sean's Fire Engines 2 3 4 5 6 QUANTITY (Fire engines) Demand ▶ Q Search 7 8 9 10 Revenue Lost Revenue Gained increase production from six to seven fire engines because the change in True or False: If Sean's Fire Engines were a price-taking firm instead, and $100,000 were the market price for an engine, in would not affect the price at which it could sell engines. M mhp

Principles of Economics (MindTap Course List)

8th Edition

ISBN:9781305585126

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter14: Firms In Competitive Markets

Section: Chapter Questions

Problem 9PA

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