Suppose the demand and supply curves for units of university credits are given by
Q^D = 5,000 - P
Q^S = -1,000 + 4P
Where Q^D is the quantity of credits demanded, Q^S is the quantity supplied, and P is the price in dollars for each unit. The producer surplus at the equilibrium price is ____.

Question

Quizplus · Accepted Answer

Producer surplus is the area above the supply curve and below the equilibrium price. To find the equilibrium price, set quantity demanded equal to quantity supplied: 5,000 - P = -1,000 + 4P, solving this gives P = $1,200. To find the quantity at equilibrium, substitute P back into either the demand or supply equation, giving Q = 3,800. The supply curve intercepts the price axis at P = 250 (when Q = 0), so the producer surplus is the area of the triangle with base (1,200 - 250) and height 3,800, which is 0.5 * (1,200 - 250) * 3,800 = $1,805,000.

Suppose the Demand and Supply Curves for Units of University