Question

The following graph shows the supply curve for a group of students looking to sell used smartphones. Each student has only one used smartphone to sell. Each rectangular segment under the supply curve represents the "cost," or minimum acceptable price, for one student. Assume that anyone who has a cost just equal to the market price is willing to sell his or her used smartphone.

Answer 1

The curve provided in the question shows a supply curve for a number of students. A supply curve is a curve that shows the relationship between quantity supplied of a product and it's price. If we look at the graph, we can see that the region below the graph shows the cost for one student.

Region A ( the purple shaded area) represents the total producer surplus when the market price is $ 75, while Region B ( the grey shaded area) represents the total producer surplus when market price is $ 105.

For the second section of true or false, the solution is below:

The first statement is true, as Rajiv always receives more producer surplus than Simone. The reason for this is that the cost for Rajiv is less than Simone per unit and the ration for surplus per cost is higher for Rajiv than Simone.

For the second statement, we can calculate the producer surplus at both prices.

When price is $ 105, the producer surplus = $ 90 ( Rajiv) + 60 (Simone) + 45 (Yakov) + 30 (Ana) = $ 225

When price is $ 75, the producer surplus = $ 60 (Rajiv) + 30 (Simone) + 15 (Yakov) = $ 105

Thus, the producer surplus is higher when the price is $ 105 than when it is $ 75. The statement is true.

For the last part of the question, in order for Ana to earn a producer surplus of exactly $ 45 from selling a used smartphone, the market price needs to be 45 excess of cost which is $ 75. So the market price should be $ 120.