Question

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

Yvette's Weekly Supply024681012141618205.004.504.003.503.002.502.001.501.000.500PRICE (Dollars per slice)QUANTITY (Slices of apple pie)SupplyPriceA

From the previous graph, you can tell that Yvette is willing to supply her 4th slice of apple pie for

each week. Since she receives $3.00 per slice, the producer surplus she gains from supplying the 4th slice of apple pie is

.

Suppose the price of apple pie were to rise to $3.50 per slice. At this higher price, Yvette would receive a producer surplus of

from the 4th slice of apple pie she sells.

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

Use the purple point (diamond symbol) to shade the area representing producer surplus (PS) when the price (P) of apple pie 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 $3.50 per slice.

Small Economy’s Weekly SupplyInitial PS (P=$3.00)Additional PS (P=$3.50)0204060801001201401601802005.004.504.003.503.002.502.001.501.000.500PRICE (Dollars per slice)QUANTITY (Thousands of slices of apple pie)SupplyP=$3.00P=$3.50

Suppose the market for apple pie is a perfectly competitive market-that is, sellers take the market price as given. Yvette owns a restaurant where she sells apple pie. The following graph shows Yvette's weekly supply curve, represented by the orange line. Point A represents a point along her supply curve. The price of apple pie is $3.00 per slice, as shown by the horizontal black line. Yvette's Weekly Supply Price PRICE (Dollars per slice) Supply 0 2 4 16 18 20 6 8 10 12 14 QUANTITY (Slices of apple pie)

Answer 1

(1) Yvette is willing to supply her 4th slice of apple pie for $2.50.

(2) Since she receives $3.00 per slice, the producer surplus from supplying the 4th slice is $0.50 (= $3 - $2.50).

(3) At higher price of $3.50, Yvette would receive a producer surplus of $1.00 (= $3.5 - $2.5) from the 4th slice.

(4) Since I cannot access your graph tool, I'm labeling the relevant regions.

When Price = $3, Initial PS = Market price - Minimum acceptable price = Area ABC

When Price = $3.5, New PS = Area DEC, hence Increase in PS = area DEBA

Small Economy's Weekly Supply Initial PS (P=53.00) DP=$3.50 Additional PS (P=$3.50) P=$3.00 PRICE (Dollars per slice) Supply 0 20 40 60 80 100 120 140 160 180 QUANTITY (Thousands of slices of apple pie) 200