Muddy's Bakery and Lilly's Sweetshop both sell cupcakes.The market price of one chocolate cupcake is $2.50.Muddy's is willing to sell a cupcake for as little as $1.65; Lilly's is willing to sell a cupcake for as little as $1.75.What is the total producer surplus for the two firms?

Question

Quizplus · Accepted Answer

Producer surplus is the difference between the market price and the minimum price at which a firm is willing to sell. For Muddy's, the surplus is $2.50 - $1.65 = $0.85. For Lilly's, the surplus is $2.50 - $1.75 = $0.75. Total producer surplus is $0.85 + $0.75 = $1.60.

Muddy's Bakery and Lilly's Sweetshop Both Sell Cupcakes