Suppose Gizmo Inc. is willing to sell one gizmo for $10, a second gizmo for $12, a third for $14, and a fourth for $20, and the market price is $20. What is Gizmo Inc.'s producer surplus?
A) $56
B) $24
C) $20
D) $10

Question

Quizplus · Accepted Answer

Producer surplus is the difference between what producers are willing to accept for a good versus what they actually receive. Here, Gizmo Inc. is willing to sell the first gizmo for $10 but gets $20 (a surplus of $10), the second for $12 but gets $20 (a surplus of $8), the third for $14 but gets $20 (a surplus of $6), and the fourth at market price ($20), so no surplus. Adding these surpluses together gives $10 + $8 + $6 = $24.