Consider the market for cheese-stuffed jalapeño peppers. There are two consumers, Casey and Josey, and their willingness to pay for each pepper is given in the accompanying table. (Neither is willing to consume more than 4 peppers at any price.) Use the table (i) to construct the demand schedule for peppers for prices of $0.00, $0.10, and so on, up to $0.90, and (ii) to calculate the total consumer surplus when the price of a pepper is $0.40.
Quantity of peppers
Casey’s willingness to pay
Josey’s willingness to pay
1st pepper
$0.90
$0.80
2nd pepper
0.70
0.60
3rd pepper
0.50
0.40
4th pepper
0.30
0.30
A consumer buys each pepper if the price is less than (or equal to) the consumer’s willingness to pay for that pepper. The demand schedule is constructed by asking how many peppers will be demanded at any given price. The accompanying table illustrates the demand schedule:
Price of pepper
Quantity of peppers demanded
Quantity of peppers demanded by Casey
Quantity of peppers demanded by Josey
$0.90
1
1
0
0.80
2
1
1
0.70
3
2
1
0.60
4
2
2
0.50
5
3
2
0.40
6
3
3
0.30
8
4
4
0.20
8
4
4
0.10
8
4
4
0.00
8
4
4
When the price is $0.40, Casey’s consumer surplus is $0.50 from the first pepper, $0.30 from his second pepper, and $0.10 from his third pepper. He does not buy any more peppers. Casey’s individual consumer surplus is therefore $0.90. Josey’s consumer surplus is $0.40 from her first pepper, $0.20 from her second pepper, and $0.00 from her third pepper (since the price is exactly equal to her willingness to pay, she buys the third pepper but receives no consumer surplus from it). She does not buy any more peppers. Josey’s individual consumer surplus is thus $0.60. Therefore, total consumer surplus at a price of $0.40 is $0.90 + $0.60 = $1.50.
Question
Again consider the market for cheese-stuffed jalapeño peppers. There are two producers, Cara and Jamie, and their costs of producing each pepper are given in the accompanying table. (Neither is willing to produce more than 4 peppers at any price.) Use the table (i) to construct the supply schedule for peppers for prices of $0.00, $0.10, and so on, up to $0.90, and (ii) to calculate the total producer surplus when the price of a pepper is $0.70.
Quantity of peppers
Cara’s cost
Jamie’s cost
1st pepper
$0.10
$0.30
2nd pepper
0.10
0.50
3rd pepper
0.40
0.70
4th pepper
0.60
0.90
A producer supplies each pepper if the price is greater than (or equal to) the producer’s cost of producing that pepper. The supply schedule is constructed by asking how many peppers will be supplied at any price. The accompanying table illustrates the supply schedule:
Price of pepper
Quantity of peppers supplied
Quantity of peppers supplied by Cara
Quantity of peppers supplied by Jamie
$0.90
8
4
4
0.80
7
4
3
0.70
7
4
3
0.60
6
4
2
0.50
5
3
2
0.40
4
3
1
0.30
3
2
1
0.20
2
2
0
0.10
2
2
0
0.00
0
0
0
When the price is $0.70, Cara’s producer surplus is $0.60 from the first pepper, $0.60 from her second pepper, $0.30 from her third pepper, and $0.10 from her fourth pepper. She does not supply any more peppers. Cara’s individual producer surplus is therefore $1.60. Jamie’s producer surplus is $0.40 from his first pepper, $0.20 from his second pepper, and $0.00 from his third pepper (since the price is exactly equal to his cost, he sells the third pepper but receives no producer surplus from it). He does not supply any more peppers. Jamie’s individual producer surplus is therefore $0.60. Total producer surplus at a price of $0.70 is thus $1.60 + $0.60 = $2.20.