Assume there are three hardware stores,each willing to sell one standard model hammer in a given time period.House Depot can offer their hammer for a minimum of $7.Lace Hardware can offer the hammer for a minimum of $10.Bob's Hardware store can offer the hammer at a minimum price of $13. Given the scenario described,if the market price of hammers increased from $9 to $12,total producer surplus would increase by:
A) $1.
B) $3.
C) $5.
D) $7.

Question

Quizplus · Accepted Answer

Before the increase in market price, House Depot and Lace Hardware were both selling their hammers and earning a producer surplus of $2 each. Bob's Hardware was not able to sell their hammer at their minimum price of $13, so they had no producer surplus.

After the increase in market price to $12, all three hardware stores can now sell their hammers at a profit. House Depot and Lace Hardware would earn a producer surplus of $5 each ($12 selling price - $7 or $10 minimum price), while Bob's Hardware would earn a producer surplus of $12.

The total increase in producer surplus would be $5 for House Depot, $5 for Lace Hardware, and $12 for Bob's Hardware, totaling $22. However, we need to consider only the additional producer surplus earned, which is $5.

Assume There Are Three Hardware Stores,each Willing to Sell One