Calculate Producer Surplus if Reservation Price=20, Price=8, & Quantity=10.

A. 800 B. 1000 C. 60

C. 60

Explanation:

Producer's Surplus means the value producer derives from selling goods. For example, if producer is willing to sell the product for a price 8 but consumers are willing to pay a higher price, let's say 20, then producer achieves a surplus of 12 per unit. Let's calculate the producer's surplus -

As per question, Reservation Price (RP) = 20, Price (P) = 8, & Quantity (Q) = 10

The formula for Producer Surplus (PS) is as follow:

PS = 1/2 (RP - P) x Q

= 1/2 (20-8) x 10 = 60