2. The components of marginal revenue Felix's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Fellix produced four fire engines, but he has dedided to increase production to five fire engines. The following graph shows the demand curve Felix faces. As you can see, to sell the additional engine, Felix must lower his price from \( \$ 105,000 \) to \( \$ 90,000 \) per fire engine. Note that although Felix gains revenue from the additional engine he sells, he also loses revenue from the initial four engines becauso he sells them all at the lower price. Use the purple rectangle (diamond symbols) to shade the area representing the revenue lost from the iniblal 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 \( \$ 90,000 \).

When Felix decides to sell the fifth fire engine, he faces a classic case of marginal revenue calculations. Selling that extra engine at the lower price of $90,000 not only adds to his revenue from the one additional sale but also impacts the total revenue from the previous four engines. The drop in price leads to a revenue loss, which is the difference in price multiplied by the number of units he’s already sold. So, it's a balancing act between the loss incurred from the price drop and the gain from the additional sale! To visualize this scenario, you can imagine the shaded areas representing each revenue component. The purple rectangle highlights the revenue lost from the initial four engines due to the price decrease, while the green triangle denotes the revenue gained from selling the fifth engine. This exercise beautifully illustrates how economic principles can play out in real life, revealing the dynamic nature of pricing and sales in a monopolistic market!