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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050

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BuyFindarrow_forward

Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050
Textbook Problem

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 producer surplus does Ernie get from these 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.

Subpart (a):

To determine
The supply schedule of the water bottles.

Explanation

We have given the cost associated with pumping the bottled water and it can be tabulated as follows:

Price Quantity supplied
More than $7 4
$5 to $7 3
$3 to $5 2

Subpart (b):

To determine
The supply schedule of the water bottles and producer surplus.

Subpart (c):

To determine
The supply schedule of the water bottles and producer surplus.

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