Perfect competition and equilibrium.
- Put the demand and supply curves together (at the original productivity and wages). Taylor assumes that she is in a perfectly competitive market. How many servings will she sell? At what price?
- Draw the graph again and shade in the entire area of consumer surplus. Shade in the entire area of producer surplus.
- 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.