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1. Price and output in a competitive price-searcher market Consider a price-searching firm, Sean's Fire Engines, which sells fire engines in the fictional country of Pyrotania. Initially, Sean's produced seven fire engines but then decided to increase production to eight fire engines. The following graph shows the demand curve the firm faces. To sell the additional engine, Sean's must lower its price from $100,000 to $50,000 per engine. (Hint: Sean's Fire Engines gains revenue from the additional engine it sells, but it also loses revenue from the initial seven 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 seven engines by selling at $50,000 rather than $100,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at $50,000. CE (Thousands of dollars per fire engine) 250 225 200 175 150 125 100 25 50 Demand *|*| Revenue Lost Revenue Gained

1. Price and output in a competitive price-searcher market Consider a price-searching firm, Sean's Fire Engines, which sells fire engines in the fictional country of Pyrotania. Initially, Sean's produced seven fire engines but then decided to increase production to eight fire engines. The following graph shows the demand curve the firm faces. To sell the additional engine, Sean's must lower its price from $100,000 to $50,000 per engine. (Hint: Sean's Fire Engines gains revenue from the additional engine it sells, but it also loses revenue from the initial seven 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 seven engines by selling at $50,000 rather than $100,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at $50,000. CE (Thousands of dollars per fire engine) 250 225 200 175 150 125 100 25 50 Demand *|*| Revenue Lost Revenue Gained

Microeconomics: Private and Public Choice (MindTap Course List)
Microeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506893
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
Chapter11: Price-searcher Markets With High Entry Barriers
Section: Chapter Questions
Problem 14CQ
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Sean's Fire Engines scenario. True increase production from seven to eight 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, lowering its price from $100,000 to $50,000 would result in the same change in the production quantity and, thus, total revenue. False dominates in this
Transcribed Image Text:Sean's Fire Engines scenario. True increase production from seven to eight 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, lowering its price from $100,000 to $50,000 would result in the same change in the production quantity and, thus, total revenue. False dominates in this
1. Price and output in a competitive price-searcher market Consider a price-searching firm, Sean's Fire Engines, which sells fire engines in the fictional country of Pyrotania. Initially, Sean's produced seven fire engines but then decided to increase production to eight fire engines. The following graph shows the demand curve the firm faces. To sell the additional engine, Sean's must lower its price from $100,000 to $50,000 per engine. (Hint: Sean's Fire Engines gains revenue from the additional engine it sells, but it also loses revenue from the initial seven 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 seven engines by selling at $50,000 rather than $100,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at $50,000. 250 225 PRICE (Thousands of dollars per fire engine) 83 200 175 150 125 100 25 0 1 2 3 4 " QUANTITY (Fire engines) Demand Revenue Lost Revenue Gained
Transcribed Image Text:1. Price and output in a competitive price-searcher market Consider a price-searching firm, Sean's Fire Engines, which sells fire engines in the fictional country of Pyrotania. Initially, Sean's produced seven fire engines but then decided to increase production to eight fire engines. The following graph shows the demand curve the firm faces. To sell the additional engine, Sean's must lower its price from $100,000 to $50,000 per engine. (Hint: Sean's Fire Engines gains revenue from the additional engine it sells, but it also loses revenue from the initial seven 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 seven engines by selling at $50,000 rather than $100,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at $50,000. 250 225 PRICE (Thousands of dollars per fire engine) 83 200 175 150 125 100 25 0 1 2 3 4 " QUANTITY (Fire engines) Demand Revenue Lost Revenue Gained
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