1 EconomicsKenji's Fire Engines is the sole seller of fireengines in the fictional country of Pyrotania.Initially, Kenji produced four fire engines, but heis considering increasing production to five fireengines. The following graph shows thedemand curve Kenji faces. As you can see, to sellthe additional engine, Kenji must lower his pricefrom $105,000 to $90,000 per fire engine. Notethat although Kenji would gain revenue from theadditional engine he sells, he would also loserevenue from the initial four engines because hewould have to sell them all at the lower price.Use the purple rectangle (diamond symbols) toshade the area representing the revenue lostfrom the initial four engines by selling at$90,000 rather than $105,000. Then use thegreen rectangle (triangle symbols) to shade thearea representing the revenue gained fromselling an additional engine at $90,000.15013610590DemandXFalseQUANTITY (Fire engines)Revenue LostRevenue GainedKenji should not increase production from 4 to 5 fire engines, because the price effect dominates in this scenario.True or False: If Kenji's Fire Engines were a competitive firm instead and $105,000 were the market price for an engine, decreasing its price from$105,000 to $90,000 would result in an increase in production quantity and total revenue.For first fill in the blank options areshould/should notFor second fill in the blank option are priceeffect/output effect

Variance of market, Competitive market Monopoly market Oligopoly market Perfect competition…

es in the fictional country of Pyrotar ly, Kenji produced four fire engines, sidering increasing production to fi es. The following graph shows the nd curve Kenji faces. As you can see dditional engine, Kenji must lower hi $105,000 to $90,000 per fire engine Ithough Kenji would gain revenue fr onal engine he sells, he would also ue from the initial four engines beca d have to sell them all at the lower p be purple rectangle (diamond symb

es in the fictional country of Pyrotar ly, Kenji produced four fire engines, sidering increasing production to fi es. The following graph shows the nd curve Kenji faces. As you can see dditional engine, Kenji must lower hi $105,000 to $90,000 per fire engine Ithough Kenji would gain revenue fr onal engine he sells, he would also ue from the initial four engines beca d have to sell them all at the lower p be purple rectangle (diamond symb

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter30: Market Failure: Externalities, Public Goods, And Asymmetric Information

Section30.2: Internalizing Externalities

Problem 2ST

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