Gilberto\'s Fire Engines is the sole seller of fire engines in the fictional cou

Question

Gilberto's Fire Engines is the sole seller of fire engines in the fictional country of Pyromania. Initially, Gilberto produced five fire engines, but he has decided to increase production to six fire engines. The following graph shows the demand curve Gilberto faces. As you can see, to sell the additional engine, Gilberto must lower his price from $160,000 to 5120,000 per fire engine. Note that while Gilberto gains revenue from the additional engine he sells, he also loses revenue from the initial five 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 rive engines by selling at $120,000 rather than $160,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at $120,000. Gilberto increase production from 5 to 6 fire engines because the dominates in this scenario. True or False: If Gilberto's Fire Engines were a competitive firm instead and 5160,000 were the market price for an engine, decreasing its price from 5160,000 to 5120,000 would result in a decrease In the production quantity, but an increase in total revenue.

Explanation / Answer

True

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