Use the following to answer question:
Table 10.8
-(Table 10.8) Assume that the marginal cost of a computer is $500 and the marginal cost of a monitor is $200. Suppose that a mixed bundling strategy sets price for a computer and a monitor at $1,000 or $725 per computer and $425 per monitor. How much producer surplus is earned by this strategy?
A) $1,050
B) $880
C) $1,250
D) $975

Question

Use the following to answer question:
Table 10.8 
-(Table 10.8) Assume that the marginal cost of a computer is $500 and the marginal cost of a monitor is $200. Suppose that a mixed bundling strategy sets price for a computer and a monitor at $1,000 or $725 per computer and $425 per monitor. How much producer surplus is earned by this strategy?
A) $1,050 
B) $880 
C) $1,250 
D) $975

Quizplus · Accepted Answer

Producer surplus is the difference between the price a producer receives for a good and the marginal cost of producing that good. In this case, the marginal cost of a computer is $500 and the marginal cost of a monitor is $200. The price of a computer and a monitor is $1,000 or $725 per computer and $425 per monitor. Therefore, the producer surplus is $1,000 - $500 = $500 or $725 - $500 = $225 per computer and $425 - $200 = $225 per monitor. The total producer surplus is $500 + $225 + $225 = $1,050.

Use the Following to Answer Question