Lee can sell coffee at $3 per cup.The market equilibrium price of coffee is $3.50.Suppose Lee sells 100 cups of coffee.The producer surplus captured by Lee is $100.

Question

Quizplus · Accepted Answer

Producer surplus is the difference between the market price and the cost of production. In this case, Lee is selling coffee below the market equilibrium price, so the producer surplus should be less than $100. The producer surplus would be ($3.50 - $3) x 100 cups = $50. Therefore, the statement is false.

Lee Can Sell Coffee at $3 Per Cup