7. Producer surplus for an individual and a market

Suppose the market for cheesecake is a perfectly competitive marketthat is, sellers take the market price as given. Teresa owns a restaurant where she sells cheesecake. The following graph shows Teresa's weekly supply curve, represented by the orange line. Point A represents a point along her supply curve. The price of cheesecake is $3.00 per slice, as shown by the horizontal black line.

From the previous graph, you can tell that Teresa is willing to supply her 8th slice of cheesecake for $__ each week. Since she receives $3.00 per slice, the producer surplus she gains from supplying the 8th slice of cheesecake is $___.

Suppose the price of cheesecake were to rise to $3.75 per slice. At this higher price, Teresa would receive a producer surplus of $__ from the 8th slice of cheesecake she sells.

The following graph shows the weekly market supply of cheesecake in a small economy.

Use the purple point (diamond symbol) to shade the area representing producer surplus (PS) when the price (P) of cheesecake is $3.00 per slice. Then, use the green point (triangle symbol) to shade the area representing additional producer surplus when the price rises to $3.75 per slice.

Teresa's Weekly Supply 7.50 T 6.75 6.00 5.25 4.50 3.75 3.00 Price 2.25 1.50 0.75 upp 2 10 12 14 16 18 20 QUANTITY (Slices of cheesecake)