Question

ElectriCo sells 5,000 light switches a month for $1 apiece. It would be willing to sell them for as little as 75 cents. Suppose the price of light switches increases to $1.10. Assuming that ElectriCo is still selling the same quantity, by how much has their producer surplus per month increased?

Answer 1

$500

Step-by-step explanation:

Quantity sold = 5000

Minimum price seller is willing to accept = $0.75

Improved Market price = $1.10

Previous market price = $1

Current Producer surplus = market price - minimum price seller is willing to accept

= (1.10 × 5000) - (0.75 × 5000) = 5,500 - 3750

= $1750

Previous producer surplus = (1 × 5000)(previous market price) - (0.75 × 5000)(minimum price seller is willing to accept) = 5000 - 3750

= $1250

Producer surplus increased based on the difference between the current producer surplus and previous producer surplus

=1750 - 1250 = $500

Answer 2

$500

Step-by-step explanation:

Given that

Quantity sold = 5,000

Minimum price seller is willing to accept = $0.75

Current Market price = $1.10

Previous market price = $1

Current Producer surplus = market price - minimum price seller is willing to accept

= (1.10 × 5000) - (0.75 × 5000)

= 5,500 - 3750

= $1750

Previous producer surplus = (1 × 5000) + (0.75 × 5000)

= 5000 - 3750

= $1250

Therefore,

Producer surplus increased by

1750 - 1250

= $500