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26 February, 11:32

Assume there are three hardware stores, each willing to sell one standard model hammer in a given time period. House Depot can offer their hammer for a minimum of $7. Lace Hardware can offer the hammer for a minimum of $10. Bob's Hardware store can offer the hammer at a minimum price of $13. If the market price of price of hammers increased from $8 to $11:

A. total producer surplus would increase by $3.

B. total producer surplus would increase by $6.

C. total producer surplus would increase by $9.

D. total producer surplus would increase by $4.

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  1. 26 February, 12:09
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    The correct answer is option D.

    Explanation:

    There are three hardware stores, each willing to sell one standard model hammer in a given time period.

    House Depot can offer their hammer for a minimum of $7.

    Lace Hardware can offer the hammer for a minimum of $10.

    Bob's Hardware store can offer the hammer at a minimum price of $13.

    The producer surplus is the difference between the minimum price that a producer is willing to accept and the price he actually gets.

    At a price of $8 only House Depot will suppl.

    Total producer surplus will be

    = $8 - $7

    = $1

    At price $11 Home Depot and Lace Hardware will supply.

    Total producer surplus will be

    = ($11 - $7) + ($11-$10)

    = $4 + $1

    = $5

    The increase in producer surplus

    = $5 - $1

    = $4
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