Question

Assume that the price of a pizza at your local pizza parlor is $12. Illustrate what happens to producer surplus if the price falls from $12 to $6. First indicate the producer surplus lost by those sellers that leave the market because of this lower price. Label this A. Then indicate the decrease in producer surplus lost to those sellers that continue to sell pizza at the lower price. Label this B.

Answer 1

attached below

Step-by-step explanation:

Initial price of pizza at local parlor = $12

new price of pizza = $6

a) Product surplus = area above supply curve and below price ( A )

b) Decrease in producer surplus lost to sellers that continue selling pizza at lower price is represented with B