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 $14,total producer surplus would:
A) increase from $8 to $14.
B) increase from $1 to $12.
C) decrease from $14 to $8.
D) increase from $7 to $30.

Question

Quizplus · Accepted Answer

Before the increase in market price, all three stores were able to sell their hammers at a price higher than their minimum cost. Thus, their producer surplus was positive but varied in amount depending on their selling price. 
After the increase in market price, all three stores can sell their hammers at a higher price than before, resulting in an increase in their producer surplus. However, the increase in market price may lead to a decrease in the quantity demanded of hammers, and it is possible that some of the stores may not be able to sell all their hammers at the new market price. 
Therefore, the overall effect on total producer surplus cannot be determined without more information. However, it is clear that the producer surplus of each store will increase as long as they are still able to sell their hammers. 
The range of increase in producer surplus for each store can be calculated as follows: House Depot: $1 to $7, Lace Hardware: $4 to $10, and Bob's Hardware Store: $1 to $8. 
Adding these ranges together gives a total possible increase in producer surplus of $6 to $25. The midpoint of this range is $15.5, which is close to the increase in market price from $8 to $14. 
Therefore, the best choice is B) increase from $1 to $12, as it represents a reasonable estimate of the possible increase in total producer surplus.

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