Question

Suppose the market for pizza is a perfectly competitive market-that is, sellers take the market price as given. Rosa owns a restaurant where she sells pizza. The following graph shows Rosa's weekly supply curve, represented by the orange line. Point A represents a point along her supply curve. The price of pizza is $3.00 per slice, as shown by the horizontal black line. 

From the previous graph, you can tell that Rosa is willing to supply her sth slice of pizza for $_______  each week. Since she receives $3.00 per slice, the producer surplus she gains from supplying the 8th slice of pizza is  _______ . 

Suppose the price of pizza were to rise to $3.75 per slice. At this higher price, Rosa would receive a producer surplus of _______  from the 8th slice of pizza she sells. 

The following graph shows the weekly market supply of pizza in a small economy. 

Use the purple point (diamond symbol) to shade the area representing producer surplus (PS) when the price (P) of pizza is $3.00 per slice. Then, use the green point (triangle symbol) to shade the area representing additional producer surplus when the price rises to $3.75 per slice.

Answer 1

Rosa is willing to supply her 8th slice of pizza for $2.25. Her producer surplus on the 8th slice when the price is $3 per slice will be $(3-2.25) = $0.75.

At the higher price of $3.75 , the producer surplus on the 8th slice will be $(3.75-2.25) = $1.5

When the price was $3 per slice, the producer surplus was the area above the supply curve and below the $3 price line.

The additional surplus due to the increase in price is the area below below the supply curve and the $3.75 line but above the $3 line.