Question

Assume that Ali is the only fisherman in the village. The marginal cost of catching the first fish is 10,the second is 15, and the marginal cost remains constant at 20 for all fish afterwards. Berk is the only person who likes fish from the village. Assume his willingness to pay for the first fish is 40, 35 for the second fish, and 26 for the third and 0 for all fish afterwards. What is producer surplus if Ali sells the fish at 25 dollars in the market.

(a) 26   (b) 30 answer (c) 101 (d) 15

Answer 1

Producer surplus refers to the value that producers derive from transactions

Here marginal cost of catching fish is 10,15,20 etc..

But we can see that Ali is selling the fish at 25 Dollars so Ali is willing to sell the fish for 25 dollars.

On the other hand Berk is ready to buy the fish at more amount so,

Producer surplus for first fish : 40-25 = 15

Producer surplus for Second fish : 35-25 = 10

Producer surplus for third fish : 26-25 = 1

Total producer surplus : 26

( Note: When Ali is willing to sell fish for 25 Dollars but he is able to sell the fish for 40 then the producer surplus is 40-25=15)