The following graph shows the marginal cost curves of two profit-maximizing firms in a perfectly competitive market.

-Refer to the graph above.If the equilibrium price in this market is $5,Firm 1's producer surplus is equal ________,and Firm 2's producer surplus is equal ________.
A) $24; $16
B) $24; $40
C) $12; $24
D) $14; $8

Question

The following graph shows the marginal cost curves of two profit-maximizing firms in a perfectly competitive market.
 
-Refer to the graph above.If the equilibrium price in this market is $5,Firm 1's producer surplus is equal ________,and Firm 2's producer surplus is equal ________.
A) $24; $16 
B) $24; $40 
C) $12; $24 
D) $14; $8

Quizplus · Accepted Answer

At the equilibrium price of $5, the quantity demanded in the market is 8 units. Both firms will produce 4 units each (where their marginal cost is equal to the price). 
- Firm 1's producer surplus is the area above its marginal cost curve and below the price line up to the quantity it produces, which is ($5-$2) x 4 = $12.
- Firm 2's producer surplus is the area above its marginal cost curve and below the price line up to the quantity it produces, which is ($5-$3) x 4 = $8. 
Therefore, the total producer surplus in the market is $12 + $8 = $20, which means that neither option A nor B is possible. Option C is the only one that correctly identifies the producer surplus of each firm within the given constraints.

The Following Graph Shows the Marginal Cost Curves of Two