Question

Mr Hart sold his house. The asking price was R720 000, and he decided that he would take no less than R700 000. After some negotiation, he sold the house for R705 000. His producer surplus is

Answer 1

The asking price was R720 000 and he decided he would take no less than R700 000.

If he sold the house at asking price he would gain;

$(R720, 000 - R700,000) = R20,000.$

That is his initial producer surplus.

But after negoitiation he sold at R705000.

Thus, his producer surplus :

$(705,000 - 700,000) = R5, 000.$