Question

Sally sharpens knives in her spare time for extra income. Buyers of her service are willing to pay $2.50 per knife for as many knives as Sally is willing to sharpen. On a particular day, she is willing to sharpen the first knife for $1.75, the second knife for $2.25, the third knife for $2.75, and the fourth knife for $3.25. Assume Sally is rational in deciding how many knives to sharpen. Her producer surplus is

Answer 1

Answer:

The producer surplus is $1.00

Explanation:

The producer surplus is a surplus which shows a difference between producers who are willing to pay and the price which producer receive

In mathematically,

Producer surplus = Willing to pay - Price received by the customer with respect to the supply of the goods

So,

For First knife, the producer surplus would be

= $2.50 - $1.75

= $0.75

For the second knife, the producer surplus would be

= $2.50 - $2.25

= $0.25

For the third and fourth knife, the producer surplus would not be there because receiving price is more than the paying price

So, the producer surplus would be

= First knife + second knife

= $0.75 + $0.25

= $1.00

Hence, the producer surplus is $1.00