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 1dollar, cost of second bottle 4dollar, cost of third bottle 5dollar, cost of fourth bottle 7dollar. 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 \(4\)dollar, 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 \(6\)dollar, how does quantity supplied change? How does Ernie's producer surplus change? Show these changes in your graph.

Imagine a ladder where each rung represents a different quantity of goods a producer is willing to supply at various prices. That's what a supply schedule is, much like the one we observed with Ernie's water bottles. As prices climb, Ernie is encouraged to supply more of his bottled water, despite the increasing costs of production. This relationship is vital as it reflects a fundamental principle in economics: producers are motivated to increase their production when prices are favorable.

For Ernie, the supply schedule indicated that his first bottle costs \(1 to produce, and this would be the minimum price he'd accept. The second bottle, being more costly at \)4, sets a higher floor for what he would want in a sale to justify the effort and resources. This pattern continues, showing that Ernie's willingness to supply more bottles is directly tied to the compensation he anticipates from higher sales prices.

Take Ernie's supply schedule and transform it into a visual aid, and you have the supply curve. It's a graph that economists use to showcase the relationship between the price of a good and the quantity of that good producers are ready to supply. In an ordinary supply curve, you'll find the price on the vertical axis and quantity on the horizontal axis.

Ernie's situation provided a perfect example. As we plotted the cost against the quantity of water bottles, we drew an upward-sloping line through the points. Why upward-sloping? Because as the price rises, Ernie is willing to pump out more bottles of water despite the increasing effort, reflecting his and most producers' response to potential gains. This powerful tool helps us predict how changes in the market can affect production levels.

In the realm of economics, the quantity supplied refers to the specific amount of goods that producers are ready to sell at a given price. A change in price can lead to a movement along the supply curve, showing an increase or decrease in this quantity. When the price of Ernie's bottled water was $4, he was only willing to supply two bottles since producing a third would escalate his costs beyond what he'd receive from sales.

Understanding quantity supplied is crucial because it can fluctuate with market conditions, influencing producers' decisions. These changes can be fleeting, with quantity supplied varying day-to-day. Or they could be long-term adjustments, which might even lead to a shift in the supply curve itself if production costs change substantially.

Central to the story of any producer, including Ernie, is the economics of production. This field of study examines how resources are transformed into products or services that hold value to consumers. It covers the costs incurred at every production level and how those costs impact the number of goods supplied.

For instance, rising costs can limit production due to diminished profitability, while innovations that decrease production costs might enhance supply. In Ernie's case, the escalating difficulty of pumping more water bottles raises production costs, which in turn influence his willingness to supply at various price points. This demonstrates the delicate balance of resource management, cost control, and revenue generation that producers navigate in bringing goods to market.