Assume there are three hardware stores, each willing to sell one standard model hammer in a given time period. House Depot could offer a hammer for a minimum of $7. Lace Hardware could offer a hammer for a minimum of $10. Bob's Hardware could offer a hammer for a minimum of $13.If the market price of hammers decreased from $15 to $13, which of the following can be said with certainty?
A) Bob's Hardware would no longer participate in the market.
B) Total producer surplus would decrease.
C) Only Bob's Hardware would experience a drop in producer surplus.
D) Bob's Hardware would continue to participate in the market.

Question

Quizplus · Accepted Answer

When the market price decreases from $15 to $13, the producer surplus for each store decreases because the difference between the market price and their minimum selling price (cost) is reduced.

Assume There Are Three Hardware Stores, Each Willing to Sell