Question

Firm	Production Costs
Beca	$10
Rob	$7.50
Trisha	$6
Mike	$5.25
Steve	$5

Each firm below can produce only 1 pound of cookies. Suppose this is the market for cookies and that demand is perfectly elastic. Let the market clearing price be $6 per pound of cookies. Suppose also that there is a $0.50 negative externality associated with the consumption of a pound of cookies by the market. What is the producer surplus in this market? (use algebra please) a. $1.75 b. $4
c. $5.50 d. $6

Answer 1

Solution: $1.75
Working:

   Production cost   Producr surplus = $6 - Production cost     
Becca   10   -4     
Rob   7.5   -1.5     
Trisha   6   0     
Mike   5.25   0.75     
Steve   5   1     

Producer surplus = Mike 0.75 + Steve 1 = 1.75