The market supply curve for music downloads is Q = 135(P-1) where Q is millions of downloads and P is the price in dollars per track. If the current price is $1.20 per download, what is the change in producer surplus if the price increases by $0.20 per track?
A) $5.4 million
B) $8.1 million
C) $10.8 million
D) $27 million

Question

Quizplus · Accepted Answer

The change in producer surplus due to a price increase can be calculated as the area of the triangle formed by the price change on the supply curve. Initially, at $1.20, Q = 135(1.20-1) = 27 million downloads. With a $0.20 increase, the new price is $1.40, making Q = 135(1.40-1) = 54 million downloads. The change in quantity is 27 million downloads. The area of the triangle (1/2 * base * height) representing the change in producer surplus is 1/2 * 27 million * $0.20 = $2.7 million * 3 = $8.1 million.

The Market Supply Curve for Music Downloads Is Q =