Essentials of Economics 7th Edition by Gregory Mankiw

Exercise 2

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:

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 sur-plus 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.