Question

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 was $10, then: - only House Depot and Bob's Hardware would supply hammers to the market. - House Depot, Lace Hardware, and Bob's Hardware would all supply hammers to the market, but Bob's would lose surplus. - only House Depot and Lace Hardware would gain surplus by supplying hammers to the market. -only House Depot would gain surplus by supplying hammers to the market.

Answer 1

only House Depot would gain surplus by supplying hammers to the market.

Step-by-step explanation:

In a competitive market the interaction between supply and demand determines the equilibrium price. An efficient firm can obtain surplus when it supplies the product at a price below the equilibrium price. In this case, only House Depot would have a surplus of $ 3 as it is able to supply the hammer at $ 7 but the market price is $ 10. Lace Hardware would not have a surplus because its price is identical to the market price of $ 10. Bob's Hardware Company is the least efficient and tends to take losses and exit the market as it is only able to sell the hammer for $ 13 while the market price is $ 10.