Suppose the demand for ice cream sundaes can be represented by the equation Q_D = 10 - P,and the supply is given by the equation Q_S = P.Which of the following is the best estimate of the producer surplus in this market? A)$5 B)$10 C)$12.5 D)$22.5

Question

Quizplus · Accepted Answer

To calculate producer surplus, we need to find the area above the supply curve and below the market price. In this case, the market price will be where the demand curve intersects the supply curve, so we can set the two equations equal to each other and solve forP:
10 -P = P 
Solving forP, we get P = $5.

Plugging this price back into either the demand or supply equation, we can find the corresponding quantity, in this caseQ =5 sundaes.

To find producer surplus, we need to calculate the area above the supply curve and below the price of $5. This is a right triangle with a base ofQ=5 and a height of $5, so the area is (1/2) x 5 x 5 = $12.50. Therefore, the best estimate for producer surplus is $12.50, which corresponds to answer choice C.

Suppose the Demand for Ice Cream Sundaes Can Be Represented