Question

Producer surplus for an individual and a market.

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

Sean's Weekly Supply 7.50T 6.75 6.00 ︵ 5.25 CO 4.50 3.75 3.00 Price a 2.25 1.50 0.75Supply 0 24 6 8 10 12 14 16 18 20 QUANTITY (Slices of pizza)

From the previous graph, you can tell that Sean is willing to supply his 8th slice of pizza for ($ ) each week. Since he receives $3.00 per slice, the producer surplus he gains from supplying the 8th slice of pizza is ($ ).

Suppose the price of pizza were to rise to $3.75 per slice. At this higher price, Sean would receive a producer surplus of ($ ) from the 8th slice of pizza he 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

The following graph shows Sean's weekly supply curve, represented by the orange line. Point A represents a point along his supply curve. The price of pizza is S3.00 per slice, as shownby the horizontal black line Figure 1.1: Soan's Weoky Supply .50 6.75 b.25 a 4.50 3.75 3.00 Prce Producer Surplus 1.50 0.75Supoly 2.68"О121/ 16 18 2C QUANTITY Slices of cizza) Thus, from the above graph 1.1, it is clear that the producer is willing to accept the price is $2.25 and the market price is $3.00. Thus, the producer surplus is as follows PS $3.00 - $2.25 S0.75 Thus, the producer surplus is S0.75 when the market price is $3.00

Figure 1.2: Small Economy's Weekly Supply 7.50 6.75 6.00 5.25 4.50 3.75 3.00 2.25 1.50 0.75 Initial PS (P-$3.00) Additional PS (P-$3.75) P-$3.75 P $3.00 Producer Surplus 0 20 40 60 80 100 120 140 160 180 200 QUANTITY (Thousands of slices of pizza) When the price is S3.75, the producer surplus will be as follows, PS $3.75- $2.25 $1.50 Thus, the producer surplus is S1.50 when the market price is S3.75