Let P represent price; let QS represent quantity supplied; and assume the equation of the supply curve is P = 10 + (1/4)Q^S . If 80 units of the good are produced and sold, then producer surplus amounts to $1,200.

Question

Quizplus · Accepted Answer

Producer surplus is calculated as the area above the supply curve and below the equilibrium price, up to the quantity sold. Given the supply curve equation P = 10 + (1/4)QS and a quantity supplied (QS) of 80 units, the price (P) at this quantity is P = 10 + (1/4)*80 = 10 + 20 = 30. The area of the triangle representing producer surplus is 1/2 * base * height = 1/2 * 80 * (30 - 10) = 40 * 20 = 800. Therefore, the producer surplus is $800, not $1,200.

Let P Represent Price; Let QS Represent Quantity Supplied; and Assume