Question

The supply function of a certain product is P = 16 + 2Q, where P is the price and Q is the number of units produced. Find the producer surplus if the market price P = 200. [1] 7 400 [2] 8 464 [3] 12 464 [4] 20 000

Answer 1

Producer surplus = $1/2\cdot Q(P_1-P_2)$

where Q is quantity, P₁ is price,

P₂ is minimum price any producer is willing to sell at.

$Q=\frac{P-16}{2}=\frac{200-16}{2}=92$

$P_1=200$

$P_2=16$

Producer surplus =$1/2\cdot 92\cdot(200-16)=8464$

Answer: [2] 8 464