Question

Mountain River Adventures offers white water rafting trips down the Colorado River. It costs the firm $100 for the first raft trip per day, $120 for the second, $140 for the third, and $160 for the fourth. If the market price for a raft trip was $120 but has now increased to $150, the gain in producer surplus is equal to:
(a) 20$,
(b) 70$,
(c) 80$,
(d) 90$

Answer 1

Answer:

The correct answer is option b.

Explanation:

Mountain River Adventures offers white water rafting trips down the Colorado River.

It costs the firm $100 for the first raft trip per day, $120 for the second, $140 for the third, and $160 for the fourth.

The market price for a raft trip was $120 but has now increased to $150.

The producer surplus is the difference between the price that a producer is willing to receive and the price he actually gets.  

The increase in producer surplus due to the increase in price will be

= $150 -$120

= $70