Jorge sells a hammock for $85. His marginal cost for one hammock is $40, and his average cost is $50. What is Jorge's producer surplus on the sale of one hammock?
A)-$5
B)$45
C)$35
D)$40

Question

Quizplus · Accepted Answer

Jorge's producer surplus is the difference between the price he receives and his marginal cost, which is $85 - $40 = $45. Since his average cost is $50, he still makes a profit of $45 - $50 = -$5, but this is not part of his producer surplus. Therefore, the answer is B.

Jorge Sells a Hammock for $85