Assume there are three hardware stores in the market for hammers and that all three markets produce a single,standard model hammer.House Depot is an enormous mass producer of hammers and can offer a hammer for sale for a minimum of $7.Lace Hardware is a franchise and can offer the hammer for sale for a minimum of $10.Bob's Hardware store is a family owned and operated,independent hardware store and can offer hammers at a minimum price of $13.
Given the scenario described,if the market price of hammers increased from $9 to $13:
A)House Depot's producer surplus would increase by $4.
B)Lace Hardware's producer surplus would increase by $3.
C)Bob's Hardware's producer surplus would remain unchanged.
D)All of these statements are true.

Question

Quizplus · Accepted Answer

If the market price of hammers increased from $9 to $13, then all three hardware stores would be able to increase their selling prices. House Depot can now sell their hammer for a price higher than the minimum of $7, while Lace Hardware and Bob's Hardware can increase their prices to at least $13 or higher.
Thus, House Depot's producer surplus would increase by the difference between the new selling price and their cost of production, which is $13-$7=$6. Similarly, Lace Hardware's producer surplus would increase by $3 and Bob's Hardware's producer surplus would remain unchanged, as they were already selling at the minimum price of $13. Therefore, all three statements are true, and the answer is D.

Assume There Are Three Hardware Stores in the Market for Hammers