Answer:
A. 3 hammers
B. $12
C. It decreases to 2 hammers
D. Total producer surplus reduces to $4
Explanation:
Producer surplus is the difference between the price of a good and the least price the seller is willing to sell his product.
Producer surplus = price - willingness to sell
If the market price of the hammer is $12, all stores will sell their hammers because the market price is greater or equal to their willingness to sell. Therefore, three hammers would be sold.
The producer surplus of each store :
House Depot = $12 - $5 = $7
Lace Hardware = $12 - $7 = $5
Bob's Hardware store = $12 - $12 = 0
Total producer surplus is $12
If prices decreases to $8, Bob's Hardware store would not sell its hammer because its willingness to sell is greater than the price of the hammer. So, only the two firms would sell.
Producer surplus when market price is $8
House Depot = $8 - $5 = $3
Lace Hardware = $8 - $7 = $1
Total producer surplus is $4.
Total producer surplus decreases from $12 to $4.
I hope my answer helps you
