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

Ella makes boeuf bourguignon using equipment that she rents for $75 and beef, potatoes, wine and other ingredients that cost $12.50 a serving. (Note that she signed a lease and pays the rent regardless of how many dinners she serves.) She hires workers at $25 each and finds that they produce servings according to the following schedule:

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.

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)