Question

Consider a new market in which we have five potential sellers. Seller A has costs of $20, Seller B has costs of $41, Seller C has costs of $19, Seller D has costs of $25, and Seller E has costs of $31. If the good produced has a market price of $30, total producer surplus in the market will equal $________.

(Carefully follow all numeric directions.)

Answer 1

Ans. The producer surplus is calculated as the difference between the price at which the good is sold in the market and price at which the producers were willing to sell i.e. the cost. So, seller B and seller E won't sell the good in the market as the market price is below there cost of production. So, producer surplus associated with sellers A, C and D is,

Producer surplus = (30-20) + (30-19) + (30-25) = 10 + 11 + 5 = $26