Question

Made the right way with fresh ingredients, boeuf bourguignon (look it up!) is the best thing ever. Your friend Ella Marija Lani Yelich-O'Connor has abandoned her music career to open a bistro, which specializes in boeuf bourguignon and other French food, including crème brulee. She has done some market research and finds that your neighbors value boeuf bourguignon dinners according to the following schedule:

Servings	MU boeuf bourguignon
1	$60.00
2	$58.00
3	$56.00
4	$54.00
5	$52.00
6	$50.00
7	$48.00
8	$46.00
9	$44.00
10	$42.00
11	$40.00
12	$38.00
13	$36.00
14	$34.00

Servings	Total Workers
1	0.30
2	1.00
3	1.90
4	3.00
5	4.30
6	5.80
7	7.50
8	9.40
9	11.50
10	13.80
11	16.30
12	19.00
13	21.90
14	25.00

Perfect competition and equilibrium.

3a. Put the demand and supply curves together (at the original productivity and wages). Ella is a musician and never took Economics so she naively assumes that she is in a perfectly competitive market. How many servings will she sell?

3b. Draw the graph again and shade in the entire area of consumer surplus. Shade in the entire area of producer surplus.

3c. Calculate consumer surplus as the sum of the difference between the marginal utility and the price for each serving up to the last sold. Calculate producer surplus as the sum of the difference between price and marginal cost for each serving.

Monopoly and equilibrium

4a. Ella gets smart and realizes that she is the only quality bistro around. Calculate the marginal revenue she gets for each additional serving as the change in total revenue (price times sales). Graph this. What is the new quantity of sales and the new price.

4b. Shade in the entire area of consumer surplus on your monopoly graph. Shade in the entire area of producer surplus.

4c. Calculate total consumer and total producer surplus under the monopoly situation.

4d. Compare the sum of consumer and producer surplus for the monopoly with the results for perfect competition. Which is better for consumers? Which is better for producers?

Moving Equilibrium. Show the effect of each on the monopoly market equilibrium; you don’t need to have exact answers but explain the direction of change in the demand and/or marginal cost curves.

5a. Beef prices rise.

5b. There is good weather, and potatoes are in abundant supply.

5c. Taylor Swift opens a restaurant across the street.

5d. A local restaurant reviewer praises the quality of Ella’s boeuf bourguignon.  

Answer 1

3a)
Servings	Marginal cost	MU	CS	PS
1	20	60	10	30
2	30	58	8	20
3	35	56	6	15
4	40	54	4	10
5	45	52	2	5
6	50	50	0	0
7	55	48	-2	-5
8	60	46	-4	-10
9	65	44	-6	-15
10	70	42	-8	-20
11	75	40	-10	-25
12	80	38	-12	-30
13	85	36	-14	-35
14	90	34	-16	-40
She will sell 6 units
3c)
Consumer Surplus = 10+8+6+4+2+0 = 30
Producer surplus = 30+20+15+10+5+0 = 80

3b)