Mo's HookNLadder is the only company selling fire engines in the fictional country of Alexandrina. Mo initially produced eight trucks, but then decided to increase production to nine trucks. The following graph gives the demand curve faced by Mo's HookNLadder. As the graph shows, in order to sell the additional fire truck, Mo must lower the price from $80,000 to $40,000 per truck. Notice that Mo gains revenue from the sale of the additional engine, but at the same time, he loses revenue from the initial eight 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 eight engines by selling at $40,000 rather than $80,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at $40,000. PRICE (Thousands of dollars per fire engine) Mo 220 200 180 160 140 120 100 80 60 40 20 0 0 1 O True 2 O False 3 4 5 6 QUANTITY (Fire engines) 7 8 Demand 9 10 Revenue Lost Revenue Gained increase production from 8 to 9 fire engines because the ? True or False: If alternatively Mo's HookNLadder were a competitive firm 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. dominates in this scenario.
Mo's HookNLadder is the only company selling fire engines in the fictional country of Alexandrina. Mo initially produced eight trucks, but then decided to increase production to nine trucks. The following graph gives the demand curve faced by Mo's HookNLadder. As the graph shows, in order to sell the additional fire truck, Mo must lower the price from $80,000 to $40,000 per truck. Notice that Mo gains revenue from the sale of the additional engine, but at the same time, he loses revenue from the initial eight 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 eight engines by selling at $40,000 rather than $80,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at $40,000. PRICE (Thousands of dollars per fire engine) Mo 220 200 180 160 140 120 100 80 60 40 20 0 0 1 O True 2 O False 3 4 5 6 QUANTITY (Fire engines) 7 8 Demand 9 10 Revenue Lost Revenue Gained increase production from 8 to 9 fire engines because the ? True or False: If alternatively Mo's HookNLadder were a competitive firm 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. dominates in this scenario.
Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter23: Price-searcher Markets With Low Entry Barriers
Section: Chapter Questions
Problem 17CQ
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For the fill in the blanks the answer choices are: Mo (should or should not), and the (price effect or output effect)
Transcribed Image Text:Mo's HookNLadder is the only company selling fire engines in the fictional country of Alexandrina. Mo initially produced eight trucks, but then decided
to increase production to nine trucks. The following graph gives the demand curve faced by Mo's HookNLadder. As the graph shows, in order to sell the
additional fire truck, Mo must lower the price from $80,000 to $40,000 per truck. Notice that Mo gains revenue from the sale of the additional engine,
but at the same time, he loses revenue from the initial eight 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 eight engines by selling at $40,000 rather
than $80,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at
$40,000.
PRICE (Thousands of dollars per fire engine)
Mo
220
200
180
160
140
120
100
80
60
40
20
0
0
1
O True
2
O False
3
4 5 6
QUANTITY (Fire engines)
7
8
Demand
9 10
Revenue Lost
Revenue Gained
increase production from 8 to 9 fire engines because the
?
True or False: If alternatively Mo's HookNLadder were a competitive firm 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.
dominates in this scenario.
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