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 $13 to $11:
A)total producer surplus would decrease from $9 to $5.
B)total producer surplus would increase from $5 to $9.
C)total producer surplus would decrease from $30 to $17.
D)total producer surplus would remain unchanged.

Question

Quizplus · Accepted Answer

When the market price of hammers decreases from $13 to $11, Bob's Hardware store would have to decrease the hammer price from $13 to $11. This decrease in the minimum price decreases producer surplus for Bob's Hardware store from $0 to $2. Lace Hardware would also need to decrease the hammer price from $10 to $7, which decreases producer surplus from $3 to $0. Home Depot would not be affected as the market price is still above their minimum price. Overall, the total producer surplus would decrease from $9 to $5. Therefore, the correct answer is A.

Assume There Are Three Hardware Stores in the Market for Hammers