Question

The supply of Tesla is P = 20,000 + 10 Q, and the demand function is P = 200,000 -2Q, P is in $/car and Q is the number of cars produced per year. If the current selling price of the Tesla is $75,000, what is producer surplus?

Answer 1

Producer Surplus is the area above Supply curve and below Price line

Here Price line is P = 75,000.

When P = 75,000, According to supply curve 75,000 = 20,000 + 10Q => Q = Quantity supplied = (75,000 - 20,000)/10 = 5500.

Vertical intercept of supply curve is the price hen quantity supplied = 0 => Vertical intercept = 20,000.

Hence Producer surplus = (1/2)(75,000 - 20,000)(5500) = $151,250,000

Note that area of a triangle = (1/2)*base*height.

Hence, Producer surplus = $151,250,000