Question

Assume equilibrium price is $7. If three sellers sell one unit of their product at the equilibrium price, but would be willing to sell at $2, $4, and $6. What is total producer surplus?

Answer 1

The total producer surplus is calculated by subtracting the seller's willingness to sell prices from the equilibrium price for each seller and summing these values. In this case, it amounts to $9, representing the extra benefit producers receive by selling at the equilibrium price.

Step-by-step explanation:

The question asks to calculate the total producer surplus when three sellers sell one unit of their product each at the equilibrium price of $7, while they would have been willing to sell at lower prices ($2, $4, and $6 respectively).

To find the producer surplus for each seller, we subtract their willingness to sell price from the equilibrium price and then sum these values up for all sellers. The calculations are as follows:

Seller 1: $7 - $2 = $5

Seller 2: $7 - $4 = $3

Seller 3: $7 - $6 = $1

The total producer surplus is the sum of individual surpluses, which equals $5 + $3 + $1 = $9.

This surplus represents the extra benefit producers receive by selling their goods at the market equilibrium price, which is higher than the minimum price at which they were willing to sell.