Ernie’s Water Pump Assignment Help With Solution

1.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.

2.It is a hot day, and Bert is very thirsty. Here is the value he places on a bottle of water:

Value of first bottle	$7
Value of second bottle	$5
Value of third bottle	$3
Value of fourth bottle	$1

a)From this information, derive Bert’s demand schedule. Graph his demand curve for bottled water.

b)If the price of a bottle of water is $4, how many bottles does Bert buy? How much consumer surplus does Bert get from his purchases? Show Bert’s consumer surplus in your graph.

c)If the price falls to $2, how does quantity demanded change? How does Bert’s consumer surplus change? Show these changes in your graph.

3.Yasiel has a monopoly on sales of pizzas in the small town of North Key Largo, Florida. Use the following information on the demand for Yasiel’s pizzas to answer the questions:

PRICE	QUANTITY DEMANDED
$30	0
25	1
20	2
15	3
10	4
5	5
0	6

a. If Yasiel can produce pizzas at a constant cost of $5 per pizza, how many pizzas does he produce, what price does he charge, and how much profit does he make?

b. If Yasiel is able to engage in perfect price discrimination, what is his total revenue for 3 units? What is the marginal revenue of the third unit?

c. If Yasiel is able to engage in perfect price discrimination, how many pizzas does he produce and how much profit does he make?

d. Draw a graph showing producer surplus, consumer surplus, and deadweight loss if Yasiel does not price discriminate. Draw a second graph showing producer surplus, consumer surplus, and deadweight loss if he practices perfect price discrimination.

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4.Assume that the demand for diamond rings is Q = 24 − P, and each ring contains one diamond. The marginal cost for DeBeers of mining a diamond is $2, and an independent retailer’s marginal cost of retailing is $4. If DeBeers did its own retailing, its costs would be $8 per ring (plus $2 for the diamond). Neglect any fixed costs.

a. [Required calculus] Show that If DeBeers deals with independent retailers it sells them nine diamonds at $11 each, for a profit of $81. Then show that if the company does its own retailing it sells five rings at $19 each, for a profit of $45.

b. How will your analysis of this problem change if DeBeers must deal with a monopoly retailer? Is it more or less likely that DeBeers will wish to go into retailing?

c. DeBeers actually operates 39 retail shops, all at very affluent locations like Fifth Avenue in New York and Boulevard Haussmann in Paris. Why might it market its own diamonds and jewelry in these neighborhoods but not others?

5.Frances sells earrings in the perfectly competitive earrings market. Her output per day and her costs are as follows:

OUTPUT PER DAY	TOTAL COST
0	$1.00
1	2.50
2	3.50
3	4.20
4	4.50
5	5.20
6	6.80
7	8.70
8	10.70
9	13.00

a.If the current equilibrium price in the earring market is $1.80, how many earrings will Frances produce, what price will she charge, and how much profit (or loss) will she make? Draw a graph to illustrate your answer. Your graph should be clearly labeled and should include Frances’s demand, ATC, AVC, MC, and MR curves; the price she is charging; the quantity she is producing; and the area representing her profit (or loss).

b.Suppose the equilibrium price of earrings falls to $1.00. Now how many earrings will Frances produce, what price will she charge, and how much profit (or loss) will she make? Show your work. Draw a graph to illustrate this situation, using the instructions in part (a).

c.Suppose the equilibrium price of earrings falls to $0.25. Now how many earrings will Frances produce, what price will she charge, and how much profit (or loss) will she make?

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