Exhibit 6-7
-Refer to Exhibit 6-7. If market price increases from $18 to $20, then producer surplus for the profit-maximizing firm
A)increases by $2.
B)decreases by $2.
C)increases by $7.
D)decreases by $1.
E)does not change.

Question

Exhibit 6-7 
-Refer to Exhibit 6-7. If market price increases from $18 to $20, then producer surplus for the profit-maximizing firm
A)increases by $2. 
B)decreases by $2. 
C)increases by $7. 
D)decreases by $1. 
E)does not change.

Quizplus · Accepted Answer

Producer surplus is the area above the supply curve (or marginal cost curve for the firm) and below the market price. When the market price increases from $18 to $20, the area representing producer surplus increases. This is because the firm is now receiving $20 for each unit sold instead of $18, increasing the surplus for each unit sold. The exact amount of increase depends on the quantity sold and the shape of the supply curve, but without specific details on quantities or the supply curve shape, the general principle is that producer surplus increases with a higher market price. The specific increase amount (e.g., $7) would be determined by the details of the supply curve and market conditions, which are not provided in the question.

Exhibit 6-7 -Refer to Exhibit 6-7. If Market Price Increases from $18