ABC Company incurs a cost of 50 cents to produce a dozen eggs,while XYZ Company incurs a cost of 70 cents to produce a dozen eggs.Which of the following price increases would cause both companies to experience an increase in producer surplus?
A)The price of a dozen eggs increases from 40 cents to 55 cents.
B)The price of a dozen eggs increases from 55 cents to 70 cents.
C)The price of a dozen eggs increases from 55 cents to 75 cents.
D)All of these price increases would cause both companies to experience a loss in producer surplus.

Question

Quizplus · Accepted Answer

Both companies have a cost advantage over the price of 55 cents (ABC has a profit of 5 cents and XYZ has a loss of 15 cents). However, if the price increases to 75 cents, both companies will have a profit of 25 cents per dozen eggs, resulting in an increase in their producer surplus. Therefore, option C is the best choice. Options A and B would only benefit ABC, while option D suggests that all price increases would result in a loss of producer surplus, which is not true as demonstrated by option C.

ABC Company Incurs a Cost of 50 Cents to Produce