Question

Assume there are three hardware stores in the market for hammers and that all three markets produce a single, standard model hammer. House Depot is an enormous mass producer of hammers and can offer a hammer for sale for a minimum of $7. Lace Hardware is a franchise and can offer the hammer for sale for a minimum of $10. Bob's Hardware store is a family owned and operated, independent hardware store and can offer hammers at a minimum price of $13. Given the scenario described, if the market price of hammers increased from $9 to $13:

Bob's Hardware's producer surplus would increase.

Lace Hardware's producer surplus would decrease by $3.

House Depot's producer surplus would decrease by $4.

House depot's producer surplus would increase by $4

Answer 1

Ans: House depot's producer surplus would increase by $4

	Minimum Price	Previous Selling Price	Current Selling Price	Previous Producer Surplus	Current Produces Surplus
House Depot	7	9	13	9 - 7 = 2	13 - 7 = 6 (Producer surplus increased by 4)
Lace Hardware	10	9	13	No Participation (Selling price is less then minimum price offered)	13 - 10 = 3
Bob's Hardware	13	9	13	No Participation (Selling price is less then minimum price offered)	13 - 13 = 0

If we analyse the situation we can observe that as in previous condition the selling price was $9 that's why Lace Hardware and Bob's Hardware could not participate. But house deport participate and their producer surplus was 2. No as the selling price has increased so the producer surplus also increased. As we can see in the table that producer surplus has increased by $4 for House Depot and none other options are not satisfying the condition, hence the answer is, "House depot's producer surplus would increase by $4".

Bob's Hardware's producer surplus is 0.

And when selling price increase producer surplus also increase. That's why option two and three are invalid where it is mentioned that producer surplus would decrease.

Please don't forget to upvote the solution if it is helpful. Thank you.