Table 7-2
The only four producers in a market have the following costs:

-Refer to Table 7-2.If Abbey,Bev,and Carl sell the good,and the resulting producer surplus is $55 altogether,then the price must have been
A) $40.
B) $50.
C) $60.
D) $70.

Question

Table 7-2
The only four producers in a market have the following costs:
 
-Refer to Table 7-2.If Abbey,Bev,and Carl sell the good,and the resulting producer surplus is $55 altogether,then the price must have been
A) $40. 
B) $50. 
C) $60. 
D) $70.

Quizplus · Accepted Answer

To find the equilibrium price, we need to determine the total supply and the total demand for the good. Out of the four producers, only Abbey, Bev, and Carl are selling the good, which gives a total supply of 45 (15 + 20 + 10). However, we do not know the total demand.

We are given that the resulting producer surplus is $55 altogether. Recall that producer surplus is the difference between the price a producer receives and the cost of producing the good. If the producer surplus is $55 and there are three producers selling the good, then the average producer surplus is $18.33 ($55 ÷ 3).

Now, let's assume that the price is $60. Abbey would have a producer surplus of $45 (15 units x ($60 - $5)), Bev would have a producer surplus of $200 (20 units x ($60 - $5)), and Carl would have a producer surplus of $100 (10 units x ($60 - $5)). The total producer surplus would be $345, which is greater than the actual producer surplus of $55. Therefore, the price must be lower.

If the price was $50, Abbey would have a producer surplus of $300 (15 units x ($50 - $5)), Bev would have a producer surplus of $400 (20 units x ($50 - $15)), and Carl would have a producer surplus of $250 (10 units x ($50 - $15)). The total producer surplus would be $950, which is greater than the actual producer surplus of $55. Therefore, the price must be higher.

If the price was $70, Abbey would have a producer surplus of $15 (15 units x ($70 - $5)), Bev would have a producer surplus of $280 (20 units x ($70 - $15)), and Carl would have a producer surplus of $90 (10 units x ($70 - $15)). The total producer surplus would be $385, which is also greater than the actual producer surplus of $55. Therefore, the price must be closer to $60.

Using a similar approach, we can calculate that if the price is $55, Abbey would have a producer surplus of $0, Bev would have a producer surplus of $100 (20 units x ($55 - $15)), and Carl would have a producer surplus of $50 (10 units x ($55 - $15)). The total producer surplus would be $150, which is less than the actual producer surplus of $55. Therefore, the price must be higher.

Finally, if the price is $65, Abbey would have a producer surplus of $30 (15 units x ($65 - $5)), Bev would have a producer surplus of $360 (20 units x ($65 - $15)), and Carl would have a producer surplus of $140 (10 units x ($65 - $15)). The total producer surplus would be $530, which is greater than the actual producer surplus of $55. Therefore, the price must be closer to $60.

Based on our analysis, the best choice is C) $60.

Table 7-2 The Only Four Producers in a Market Have the Following