Ernie owns a water pump. Because pumping largeamounts of water is harder than pumping smallamounts, the cost of producing a bottle of waterrises as he pumps more. Here is the cost he incurs toproduce each bottle of water:Cost of first bottle $1Cost of second bottle $3Cost of third bottle $5Cost of fourth bottle $7a. From this information, derive Ernie’s supplyschedule. Graph his supply curve for bottledwater.b. If the price of a bottle of water is $4, how manybottles does Ernie produce and sell? How muchproducer surplus does Ernie get from thesesales? Show Ernie’s producer surplus in yourgraph.c. If the price rises to $6, how does quantity suppliedchange? How does Ernie’s producer surpluschange? Show these changes in your graph
Ernie owns a water pump. Because pumping large
amounts of water is harder than pumping small
amounts, the cost of producing a bottle of water
rises as he pumps more. Here is the cost he incurs to
produce each bottle of water:
Cost of first bottle $1
Cost of second bottle $3
Cost of third bottle $5
Cost of fourth bottle $7
a. From this information, derive Ernie’s supply
schedule. Graph his supply curve for bottled
water.
b. If the price of a bottle of water is $4, how many
bottles does Ernie produce and sell? How much
sales? Show Ernie’s producer surplus in your
graph.
c. If the price rises to $6, how does quantity supplied
change? How does Ernie’s producer surplus
change? Show these changes in your graph
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