What action leads to both gains in revenue and loses

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Reference no: EM1361037

The table below shows data for Louie's firm, which is a single-price monopolist in the fire truck market. The cost of producing an additional fire truck is constant at $20,000.

Price Number of fire trucks demanded
$80,000 0
$60,000 200
$40,000 400
$20,000 600
$0 800

Use the blue points (circle symbol) to plot the market demand curve for fire trucks. Line segments will automatically connect the points. Be sure to plot from left to right.

Initially, Louie produced 300 fire trucks. Suppose that Louie has decided to increase production from 300 to 400 fire trucks. To sell the additional fire trucks, Louie needs to lower his price. This action leads to both gains in revenue and loses in revenue for Louie.

The loss in revenue equals the difference between the new, lower price and the old, higher price times the number of fire trucks sold before price was lowered. Use the purple rectangle (diamond symbols) to shade the area of revenue lost. The gain in revenue equals the new, lower price times the number of additional trucks sold. Use the green rectangle (triangle symbols) to shade the area of revenue gained.

Reference no: EM1361037

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