The producer surplus of Saints logo hats at the profit-maximizing output is $16.
Determining Producer Surplus of Saints Logo Hats
Here's how to determine the producer surplus of Saints logo hats:
1. Identify the Profit-Maximizing Output:
A monopoly maximizes its profit by producing at the point where marginal revenue (MR) equals marginal cost (MC). In this case, the marginal cost (MC) is constant at $18 per hat.
2. Calculate Marginal Revenue (MR):
Since the Saints have a monopoly, they can control the price of their product. Therefore, their marginal revenue is equal to the price they set.
From the table, we can see that the price at which MR = MC is $22 per hat.
3. Calculate Producer Surplus:
Producer surplus represents the difference between the price received by the producer (monopoly) and the marginal cost of production
Producer surplus per unit = Price - Marginal cost
Producer surplus per unit = $22 - $18
Producer surplus per unit = $4
4. Calculate Total Producer Surplus:
To find the total producer surplus, we need to multiply the producer surplus per unit by the number of units sold at the profit-maximizing output.
From the table, we can see that the profit-maximizing output is 4 hats.
Total producer surplus = Producer surplus per unit x Number of units sold
Total producer surplus = $4/hat x 4 hats
Total producer surplus = $16
Therefore, the producer surplus of Saints logo hats at the profit-maximizing output is $16.