Question

Muddy's bakery and lily's sweet shop both sell cupcakes. the market price of one chocolate cupcake is $2.50. muddy's is willing to sell a cupcake for as little as $1.65; lilly's is willing to sell a cupcake for as little as $1.75. what is the total producer surplus for the two firms

Answer 1

The total producer surplus for the two firms is : $1.60

($2.50 - $1.65) + ($2.50 - $1.75) = $1.60

Answer 2

Answer:

Muddy's bakery producer surplus = ($2.50 - $1.65) = $0.85

Lily's sweet shop producer surplus = ($2.50 - $1.75) = $0.75

Total producer surplus of the two firms = ($0.85 - $0.75) = $1.60

Explanation:

Producer surplus is the difference between the amounts the producer is willing to sell the goods for and the actual amount he/she receives when the trade is made.