Question
Asked Oct 26, 2019
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  1. Calculate the loss in producer surplus of the price fall to $12, due to

 

  1. Some producers leave the market. 

2. The remaining producers sell their product at the lower price

Price
Supply
24
A
22
20
H
18
F
16
14
I
12
Demand
10
8
++
5 6 7
10 11 uatity
3
4
8
9
00
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Price Supply 24 A 22 20 H 18 F 16 14 I 12 Demand 10 8 ++ 5 6 7 10 11 uatity 3 4 8 9 00

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Expert Answer

Step 1

The producer surplus is the difference between the actual market price of a good and the lowest price a producer would be willing to accept for a good. Graphically producer surplus is the area that lies  below the price line and above the supply curve.

Step 2

Given, the equilibrium price is $16. At equilibrium price P = $16,  area of triangle DFB in the given graph (in question) represent the producer surplus (PS). Which is equal to:

1
PS x pricex quantity
2
1
- x 12 x 6
2
36
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1 PS x pricex quantity 2 1 - x 12 x 6 2 36

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Step 3

If price fall to $12, then quantity also falls to 4 unit.

In the graph, area of tria...

PS
x pricex quantity
1
-x 8x4
2
= 16
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PS x pricex quantity 1 -x 8x4 2 = 16

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