Question

7. Producer surplus for an individual and a market 

Suppose the market for apple pie is a perfectly competitive market-that is, sellers take the market price as given. Jacques owns a restaurant where he sells apple pie. The following graph shows Jacques's weekly supply curve, represented by the orange line. Point A represents a point along his supply curve. The price of apple pie is $3.00 per slice, as shown by the horizontal black line. 

Answer 1

From the given graph and the supply curve, we can see that Jacques is willing to supply the 8th slice of the apple pie for $2.25. But he getting a fixed amount of $3 for each slice of apple pie.

Producer surplus is the difference between the amount that the producer receives after selling the good and the price at which the producer is willing to sell that good.

So the producer surplus in this case = 3 - 2.25 = $0.75.

If the price of each slice of apple pie rises to $3.75, then the producer surplus on the 8th slice of the apple pie = 3.75 - 2.25 = $1.5.

Initial producer surplus is the area enclosed in the triangle below the $3 line.

Additional producer surplus is the difference in the area enclosed in the triangle below the $3.75 line and the area enclosed in the triangle below the $3 line.