Suppose the market price is $5. The producer who sells the first unit of output has a willingness-to-sell equal to $1; the producer who sells the second unit of output has a willingness-to-sell equal to $2; and the producer who sells the third unit of output has a willingness-to-sell equal to $4. Total producer surplus across these three producers is

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Quizplus · Accepted Answer

Producer surplus is the difference between the price that producers receive and the cost of production. In this case, the first producer sells at a price of $5 and is willing to sell at $1, so their producer surplus is $4. The second producer sells at a price of $5 and is willing to sell at $2, so their producer surplus is $3. The third producer sells at a price of $5 and is willing to sell at $4, so their producer surplus is $1. Therefore, the total producer surplus across all three producers is $4 + $3 + $1 = $8.

Suppose the Market Price Is $5