Question

After the price floor is instituted, the Chairman of Productions Office buys up any barrels of gosum berries that the producers are not able to sell. With the price floor, the producers sell 300 barrels per month to consumers, but the producers, at this high price floor, produce 700 barrels per month. How much producer surplus is created with the price floor? Show your calculations.

Answer 1

Answer:24,500 ; 28,000

Explanation:

Given the following :

Amount produced per month = 700 barrels

Amount sold by producers per month = 300 barrels

Price floor = $70

Producer surplus created with the price floor:

Producer surplus can be calculated thus :

Production amount × ( price difference) / 2, that is

Price difference = floor price - low price

Price difference = $70 - $0 = $70

700 × $70/2

700 × $35

$24500

If the chairman buys barrels producers aren't able to sell, the amount of gosum berries purchased by the chairman equals ;

(700 - 300) = 400

Amount spent by chairman =

Amount of gosum berries purchased × price floor

= 400 × $70 = $28,000

Answer 2

The producer surplus is created with the price floor is $24,500

• The calculation is as follows:

Producer surplus = 1/2 ×(price floor - vertical intercept of supply curve ) × quantity produced by sellers

=  1/2 × (70-0)×  700

= $24,500

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