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 decreased from $15 to $13,which of the following can be said with certainty?
A)Producer participation in the market would decrease.
B)Total producer surplus would decrease.
C)Only Bob's Hardware will experience a drop in producer surplus.
D)Producer participation in the market will not be affected.

Question

Quizplus · Accepted Answer

When the market price decreases from $15 to $13, the producer surplus for all producers decreases because they are receiving less revenue per hammer sold.

Assume There Are Three Hardware Stores in the Market for Hammers