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 increased from $9 to $12, total producer surplus would increase by:
A) $1.
B) $3.
C) $5.
D) $7.

Question

Quizplus · Accepted Answer

Before the price increase, all three hardware stores were making a profit, with House Depot making the smallest profit of $2 per hammer, Lace Hardware making a profit of $1 per hammer, and Bob's Hardware making the largest profit of $4 per hammer. 
After the price increase, all three hardware stores would make a higher profit. House Depot could now sell their hammer for $12 and make a profit of $5 per hammer. Lace Hardware could sell their hammer for $12 and make a profit of $2 per hammer. Bob's Hardware could sell their hammer for $12 and make a profit of $1 per hammer. 
Total producer surplus before the price increase was (2+1+4) = $7. 
Total producer surplus after the price increase would be (5+2+1) = $8. 
Therefore, total producer surplus would increase by $1.

Assume There Are Three Hardware Stores, Each Willing to Sell