HW4_SP09_sol - 4 a Bert's demand schedule is Price More...

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4. a. Bert’s demand schedule is:       Price Quantity Demanded More than $7 0 $5 to $7 1 $3 to $5 2 $1 to $3 3 $1 or less 4 Bert’s demand curve is shown in Figure 9. Figure 9 b. When the price of a bottle of water is $4, Ernie sells two bottles of water. His  producer surplus is shown as area A in the figure. He receives $4 for his first  bottle of water, but it costs only $1 to produce, so Ernie has producer surplus of  $3. He also receives $4 for his second bottle of water, which costs $3 to produce,  so he has producer surplus of $1. Thus Ernie’s total producer surplus is $3 + $1  = $4, which is the area of A in the figure. c. When the price of a bottle of water rises from $4 to $6, Ernie sells three bottles of  water, an increase of one. His producer surplus consists of both areas A and B in  the figure, an increase by the amount of area B. He gets producer surplus of $5  from the first bottle ($6 price minus $1 cost), $3 from the second bottle ($6 price  minus $3 cost), and $1 from the third bottle ($6 price minus $5 price), for a total  producer surplus of $9. Thus producer surplus rises by $5 (which is the size of  area B) when the price of a bottle of water rises from $4 to $6.
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5. a. Ernie’s supply schedule for water is:
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This note was uploaded on 09/15/2009 for the course ECON 201 taught by Professor Shoonlai during the Summer '09 term at Miami University.

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HW4_SP09_sol - 4 a Bert's demand schedule is Price More...

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