Assume there are three hardware stores,each willing to sell one standard model hammer in a given time period.House Depot can offer their hammer for a minimum of $7.Lace Hardware can offer the hammer for a minimum of $10.Bob's Hardware store can offer the hammer at a minimum price of $13. Given the scenario described,if the market price of hammers increased from $8 to $12,producer surplus would:
A) increase from $8 to $12.
B) increase by $4 for each producer.
C) increase by $4 for House Depot.
D) increase by $7 in total.

Question

Quizplus · Accepted Answer

Producer surplus is the difference between the market price and the cost of production for each producer. 
Before the increase in market price, House Depot can sell their hammer for a minimum of $7, making a profit of $1 (since the market price is $8). 
However, after the increase in market price, House Depot can sell their hammer for $12, making a profit of $5 ($12 - $7 = $5). Therefore, their producer surplus increases by $4.
Lace Hardware and Bob's Hardware store can also increase their prices, but since they have a higher minimum price, their producer surplus increase will be smaller compared to House Depot. 
Therefore, the correct answer is C, which states that the producer surplus will increase by $4 for House Depot.

Assume There Are Three Hardware Stores,each Willing to Sell One