Anita sharpens knives in her spare time for extra income.Buyers of her service are willing to pay $3.50 per knife for as many knives as Anita is willing to sharpen.On a particular day,she is willing to sharpen the first knife for $2.00,the second knife for $2.50,the third knife for $3.00,and the fourth knife for $3.50.Assume Anita is rational in deciding how many knives to sharpen.Her producer surplus is

Question

Quizplus · Accepted Answer

Anita is rational, meaning she will continue to sharpen knives as long as the price she receives for each knife is greater than or equal to the cost to sharpen that knife. 
Her costs to sharpen each knife are:
- First knife: $2.00
- Second knife: $2.50
- Third knife: $3.00
- Fourth knife: $3.50
Buyers are willing to pay $3.50 per knife, so Anita will continue to sharpen knives until the cost of the next knife is greater than $3.50. Therefore, she will sharpen three knives, as the cost of the fourth knife exceeds the price buyers are willing to pay. 
Her total revenue would be $10.50 (3 knives x $3.50 per knife). 
Her producer surplus is the difference between her total revenue and her costs to produce:
$10.50 (total revenue) - $7.50 (total costs of sharpening 3 knives) = $3.00.

Anita Sharpens Knives in Her Spare Time for Extra Income