Suppose Tucker Inc. is willing to sell one gizmo for $10, a second gizmo for $15, a third for $20, and the market price is $25. What is Tucker Inc.'s producer surplus?
A) $10
B) $15
C) $30
D) $50

Question

Quizplus · Accepted Answer

Producer surplus is the difference between the market price and the cost of production. For Tucker Inc., their cost of production for the first gizmo is $0 (they are willing to sell it for $10), for the second gizmo it is $5, and for the third it is $10. Therefore, their total cost of production is $15.

Their producer surplus is the difference between this cost and the market price of $25:

Producer surplus = Market price - Cost of production 
Producer surplus = $25 - $15 
Producer surplus = $10

Therefore, the answer is C) $30, which is the producer surplus for all three gizmos.