Question

A dealership obtained a used car for 6000 and the commission to the sales person is 10% of the sales price for each vehicle sold by the dealership. If the car is sold to a consumer for 8000 then what is the producer surplus of the dealership?

Answer 1

Producer surplus is an economic measure of the difference between the amount a producer of a good receives and the minimum amount the producer is willing to accept for the good. The difference, or surplus amount, is the benefit the producer receives for selling the good in the market. Producer surplus is generated by market prices in excess of the lowest price producers would otherwise be willing to accept for their goods.

Price of the car obtained $6000

Commission=10%

Sale price of the car=8000

Minimum price willing to accept=$6600

Producer surplus=8000-6600

= $1400