Suppose the market supply for good X is given by Q_X^S = −100 + 5P_X.If the equilibrium price of X is $100 per unit,then producer surplus is:

Question

Quizplus · Accepted Answer

Producer surplus is the area above the supply curve and below the equilibrium price. The supply equation is QS = -100 + 5P. At an equilibrium price of $100, QS = -100 + 5(100) = 400. The producer surplus is calculated as the area of a triangle with a base of 400 units (from 0 to 400) and a height of $100 (from the price at quantity 0, which would be -100/5 = -$20, up to the equilibrium price of $100). However, since the supply curve starts from the intercept at -100, we adjust the calculation to reflect the actual starting point of production, which effectively is at a price of $20 (where quantity supplied starts to be positive) up to $100. Thus, the height is $80 ($100 - $20), and the base is 400. The area (producer surplus) = 1/2 * base * height = 1/2 * 400 * 80 = $16,000.

Suppose the Market Supply for Good X Is Given by QXS

Suppose the Market Supply for Good X Is Given by Q_X^S