Mountain River Adventures offers whitewater rafting trips down the Colorado River.It costs the firm $100 for the first raft trip per day,$120 for the second,$140 for the third,and $160 for the fourth.If the market price for a raft trip was $120 but has now increased to $150,the gain in producer surplus is equal to:

Question

Quizplus · Accepted Answer

The gain in producer surplus is calculated by comparing the additional revenue from the price increase against the cost of additional trips made profitable by the price increase. Initially, at $120, only the first trip is profitable. When the price increases to $150, the second trip also becomes profitable. The gain in producer surplus is the difference in revenue from selling the second trip at the new price ($150) minus its cost ($120), which equals $30, plus the increase in revenue for the first trip, which is the difference between the new price and the old price ($150 - $120 = $30). So, the total gain in producer surplus is $30 (for the second trip) + $30 (increase for the first trip) = $60. However, without considering the costs and revenues for the third and fourth trips, which are not profitable even at the new price, and correcting the calculation mistake, the correct approach is to calculate the gain in producer surplus for the trips that became more profitable due to the price increase. Initially, the mistake in calculation led to an incorrect total. The correct calculation should consider the increase in surplus for each trip that is now profitable or more profitable due to the price increase, taking into account the correct costs and the number of trips now profitable at the new price.

Mountain River Adventures Offers Whitewater Rafting Trips Down the Colorado