The market demand function for ice cream is Q^d = 10 - 2P and the market supply function for ice cream is Q^s = 4P - 2,where both quantities are measured in millions of gallons per year.What is the producer surplus at the competitive market equilibrium? A) $1.5 million B) $4.5 million C) $9 million D) $13.5 million

Question

Quizplus · Accepted Answer

At the equilibrium, quantity demanded= quantity supplied
Therefore,
10 - 2P = 4P - 2
Solving this equation, we get P = $2, and Q = 8 million gallons.
At equilibrium, producer surplus = (Price - Minimum supply price) * Quantity
= ($2 - $1) * 8 million 
= $8 million
But this is only half of the total surplus, the rest of the surplus goes to the consumers. 
Therefore, the total surplus in the market is $16 million. 
Hence, the producer surplus at the competitive market equilibrium is $8 million.

The Market Demand Function for Ice Cream Is Qd =

The Market Demand Function for Ice Cream Is Q^d =