THE EXERCISE WILL BE ON FILE PLEASE I HAD TO TAKE MULTIPLE SCREENSHOT TO SHOW EVERYTHING
1. Price and output in a competitive priceisearcher market Consider a priceisearching firm, Sam's Fire Engines, which sells re engines in the fictional country of Pyrntania. Initially, Sam's produced four re engines but then decided to increase production to five fire engines. The following graph shows the demand curve the firm faces. To sell the additional engine, Sam's must lower its price from $105,000 to $90,000 per engine. (Hint: Sam's Fire Engines gains revenue from the additional engine it sells, but it also loses revenue from the initial four 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' four engines by selling at $90,000 rather than $1 05, 000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from seiiing an additional engine at $90,000. ('3 150 .3. H iii .[En 120 Revenue Lost E m Demand E 105 + 5' \\ .,. 9|) + Revenue Gained E E U 75 '5 3 E 60 m m 3 I 45 l; 8 3|) E u. 15 0 l | | l | | l | | l U 1 2 3 4 5 6 T B 9 1|] QUANTITY (Fire engines) Sam's Fire Engines V increase production from four to ve re engines because the change in V dominates in this scenario. True or False: If Sam's Fire Engines were a pricetaking firm instead, and $105,000 were the market price f0 -, increasing its production would not affect the price at which it could sell engines. 0 True 0 False 1. Price and output in a competitive price-searcher market Consider a priceisearching firm, Sam's Fire Engines, which sells re engines in the fictional country of Pyrotania. Initially, Sam's produced four re engines but then decided to increase production to ve fire engines. The following graph shows the demand curve the rm faces. To sell the additional engine, Sam's must lower its price from $105,000 to $90,000 per engine. (Hint: Sam's Fire Engines gains revenue from the additional engine it sells, but it also loses revenue from the initial four 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 four engines by selling at $90,000 rather than $105, 000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at $90,000. ('2) 150 .3. H 120 Revenue Lost Demand 105 + H 9.) + Revenue Gained 75 GI) 45 3|) PRlCE (Thousands of dollars per lire engine) 15 (l l l I l l I l l I l 0 1 2 3 4 5 6 7 9 10 QUANTITY (Fire engines) Sam's Fire Engines 7 increase production from four to ve re engines because the change in V dominates in this scenario. True or False: [f Sa - es were a pricetaking firm instead, and $105,000 were the market price for an engine, increasing its production would not affect th should not h it could sell engines. 0 True 0 False 1. Price and output in a competitive pricesearcher market Consider a priceisearching firm, Sam's Fire Engines, which sells re engines in the fictional country of Pyrotania. Initially, Sam's produced four re engines but then decided to increase production to ve fire engines. The following graph shows the demand curve the firm faces. To sell the additional engine, Sam's must lower its price from $105,000 to $90,000 per engine. (Hint: Sam's Fire Engines gains revenue from the additional engine it sells, but it also loses revenue from the initial four 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 four engines by selling at $90,000 rather than $105, 000. 'lhen use the green rectangle (triangle symbols} to shade the area representing the revenue gained from selling an additional engine at $90,000. ('2) 150 .3. H 120 Revenue Lost Demand 105 + H 9|) + Revenue Gained 75 so 45 3|) PRICE (Thousands of dollars per fire engine) 15 0 l | | l | | l | | l U 1 2 3 4 5 6 7 E 9 1|] QUANTITY (Fire engines} Sam's Fire Engines 1' increase production from four to ve re engines because the change in V dominates in this scenario. True or False: If Sam's Fire Engines were a priceitaking firm instead, and $105,000 were the market price for an engine, increasing its production would not affect the price at which it could sell engines. 0 True 0 False
