Question

ABC Company incurs a cost of 50 cents to produce a dozen eggs, while XYZ Company incurs a cost of 70 cents to produce a dozen eggs. Which of the following price increases would cause both companies to experience an increase in producer surplus?a. The price of a dozen eggs increases from 40 cents to 55 cents.b. The price of a dozen eggs increases from 55 cents to 70 cents.c. The price of a dozen eggs increases from 55 cents to 75 cents.d. All of these price increases would cause both companies to experience a loss in producer surplus.

Answer 1

c. The price of a dozen eggs increases from 55 cents to 75 cents

Step-by-step explanation:

Producer surplus is the difference between the least price a producer is willing to sell his product and the price he actually sells his product.

The least price companies ABC and XYZ would be willing to sell their eggs would be 50 and 70 cents respectively.

When price increases to 75 cents, producer surplus for : ABC = $75 - $ 50 = $25

XYZ = $75 - $70 = $5.

it's only at $75 that XYZ would have a producer surplus.

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