Assume there are three hardware stores in the market for hammers and that all three markets produce a single,standard model hammer.House Depot is an enormous mass producer of hammers and can offer a hammer for sale for a minimum of $7.Lace Hardware is a franchise and can offer the hammer for sale for a minimum of $10.Bob's Hardware store is a family owned and operated,independent hardware store and can offer hammers at a minimum price of $13.
Given the scenario described,if the market price of hammers increased from $7 to $11:
A)producer participation in the market would increase.
B)only Bob's Hardware would still lose surplus.
C)both Bob's Hardware and Lace Hardware would lose surplus.
D)House Depot is the only producer that will gain surplus.

Question

Quizplus · Accepted Answer

If the market price of hammers increases from $7 to $11, all three hardware stores will be able to increase their prices and still make a profit. As a result, more producers are likely to enter the market, increasing producer participation. Therefore, choice A is the correct answer. Choices B and C are incorrect, as there is no reason to assume that only Bob's Hardware or both Lace Hardware and Bob's Hardware would lose surplus. Choice D is also incorrect because even though House Depot is a mass producer and can offer lower prices than the other two stores, it may still lose some of its surplus if it cannot compete with the increased prices of the other stores.

Assume There Are Three Hardware Stores in the Market for Hammers