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Kenji's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Kenji produced eight fire engines, but he has
Kenji's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Kenji produced eight fire engines, but he has decided to increase production to nine fire engines. The following graph shows the demand curve Kenji faces. As you can see, to sell the additional engine, Kenji must lower his price from $80,000 to $60,000 per fire engine. Note that while Kenji gains revenue from the additional engine he sells, he also loses revenue from the initial eight engines because he sells them all 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 $60,000 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 $60,000. 100 Demand Revenue Lost TO Revenue Gained PRICE (Thousands of dollars per fire engine) 20 10 3 5 7 QUANTITY (Fire engines) Kenji increase production from 8 to 9 fire engines because the dominates in this scenario. True or False: If Kenji's Fire Engines were a competitive firm instead and $80,000 were the market price for an engine, increasing its production would not affect the price at which he can sell engines. True False
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