7. Producer surplus for an Individual and a market Suppose the market for cheese

Question

7. Producer surplus for an Individual and a market Suppose the market for cheesecake is a perfectly competitive market-that is, sellers take the market price as given. Marla owns a restaurant where she sells cheesecake. The following graph shows Maria's weekly supply curve, represented by the orange line. Point A represents a point along her supply curve. The price of cheesecake is $3.00 per slice, as shown by the horizontal black line. Maria's Weekly Supply 7.50 T 6.75 6.00 4.50 3.00 Price 1.50 075 Supply 10 12 14 16 18 20 MacBook Air

Explanation / Answer

From the given diagram, point A represents the price $2.25 where Maria is willing to supply 8 cheese cake. Since, she receives $3.0 per cake her producer's surplus is ($3.0 - $2.25)x8 = $0.75x8= $6

Now, there is supposition that the price of cheesecake rises to $3.75. Hence Maria would receive a producer surplus of ($3.75 - $2.25)x 8 = $1.5 x 8 = $12.

The producer surplus is below )of small economy).

= $o.75x120 + $0.75x40x1/2

= $105

THe diagram could not be uploaded. However, it is easy to calulate the prducer's surplus.

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