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In: Economics

Suppose the demand and supply curves are described by MC = 2.26 + 1.97Q WTP =...

Suppose the demand and supply curves are described by MC = 2.26 + 1.97Q WTP = 7.16 - 2.35Q. What is the value of producer surplus if the price is 5.26?

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Expert Solution

Answer to the question:

We know that the firms MC curve is the supply curve of the firm.So, we can assume that the supply function of the firm is Ps=2.26+1.97Q. Also the price = MC. So, at price is 5.26 the total revenue (TR) will be:

Let us now find the producer's surplus as follows:

Further calculation is done in the following image:

Thus, the producer's surplus is 2.29.

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Rahul Sunny answered 2 years ago
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