Final answer:
Minimum and maximum quantity limits in an indefinite delivery/indefinite quantity contract define the range within which goods or services are to be supplied. A minimum price contract is not permissible as it impedes competition, yet manufacturers may suggest prices to dealers. Producer surplus relates to the benefits producers gain from selling above the minimum price they would accept.
Step-by-step explanation:
In a basic indefinite delivery/indefinite quantity contract, the minimum and maximum quantity limits are key components. A minimum quantity ensures that the supplier is guaranteed to sell a certain amount of goods or services, which provides some economic certainty and allows for production planning. Conversely, the maximum quantity limit caps the obligation of the buyer to purchase and of the supplier to provide goods or services, creating a ceiling on potential demand.
The minimum price contract is illegal as it restricts competition among dealers by setting a price floor, which is a legal minimum price that dealers are not allowed to go below. Manufacturers can suggest prices to dealers and potentially stop selling to those who frequently sell below these suggested prices, a practice that navigates a fine line of legality.
Concepts such as producer surplus, quantity demanded, and quantity supplied help explain the benefits and limitations to producers within these contracts. Producer surplus represents the benefit to sellers for being able to sell at a price above the minimum they would accept, which is relevant to understanding minimum quantity limits.