The following graph shows the demand curve Shen faces. As you can see, to sell the additional engine, Shen must lower his price from $125,000 to $75,000 per fire engine. Note that while Shen gains revenue from the additional engine he sells, he also loses revenue from the initial three engines because he sells them all at the lower price. True or False: If Shen's Fire Engines were a competitive firm instead and $125,000 were the market price for an engine, decreasing its price from $125,000 to $75,000 would result in the same change in the production quantity and, thus, total revenue. Should Shen increase production from 3 to 4 fire engines?
Shen's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Shen produced three fire engines, but he has decided to increase production to four fire engines. The following graph shows the demand curve Shen faces. As you can see, to sell the additional engine, Shen must lower his price from $125,000 to $75,000 per fire engine. Note that while Shen gains revenue from the additional engine he sells, he also loses revenue from the initial three engines because he sells them all at the lower price.
True or False: If Shen's Fire Engines were a competitive firm instead and $125,000 were the market price for an engine, decreasing its price from $125,000 to $75,000 would result in the same change in the production quantity and, thus, total revenue.
Should Shen increase production from 3 to 4 fire engines?
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