Assume there are three bakeries, each willing to sell one dozen cupcakes in a given time period. The Sweet Treat can offer a dozen cupcakes for a minimum of $6. The Cake Corner can offer a dozen cupcakes for a minimum of $9. Pastry Place can offer a dozen cupcakes for a minimum of $13.If the market price of one dozen cupcakes increased from $8 to $12:
A) The Sweet Treat's producer surplus would increase by $6.
B) Pastry Place's producer surplus would increase by $1.
C) The Cake Corner's producer surplus would remain unchanged.
D) All of these statements are true.

Question

Quizplus · Accepted Answer

If the market price of one dozen cupcakes increases from $8 to $12, then the Sweet Treat can now sell their cupcakes for a higher price than their minimum offer. Therefore, their producer surplus (the difference between the market price and their minimum price) will increase by $6. The producer surplus of Cake Corner and Pastry Place may or may not change depending on their ability to sell their cupcakes at a higher price. However, the statement that Pastry Place's producer surplus would increase by $1 is not necessarily true as their minimum price is already higher than the new market price.

Assume There Are Three Bakeries, Each Willing to Sell One