Producer Surplus and Total Surplus

Producer Surplus and Total Surplus - CostandtheSupplyCurve...

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CONSUMERS, PRODUCERS, AND THE EFFICIENCY OF MARKETS 1 Cost and the Supply Curve name cost Jack $10 Janet 20 Chrissy 35 A seller will produce and sell the good/service only if the price exceeds his or her cost. Hence, cost is a measure of willingness to sell. Cost is the value of everything a seller must give up to produce a good ( i.e. , opportunity cost). Includes cost of all resources used to produce good, including value of the seller’s time. Example: Costs of 3 sellers in the lawn-cutting business.
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CONSUMERS, PRODUCERS, AND THE EFFICIENCY OF MARKETS 2 Cost and the Supply Curve 3 2 20 – 34 1 10 – 19 0 $0 – 9 Q s P Derive the supply schedule from the cost data: name cost Jack $10 Janet 20 Chrissy 35
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CONSUMERS, PRODUCERS, AND THE EFFICIENCY OF MARKETS 3 Cost and the Supply Curve $0 $10 $20 $30 $40 0 1 2 3 P Q P Q s $0 – 9 0 10 – 19 1 20 – 34 2 3
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CONSUMERS, PRODUCERS, AND THE EFFICIENCY OF MARKETS 4 $0 $10 $20 $30 $40 0 1 2 3 Cost and the Supply Curve P Q At each Q , the height of the S curve is the cost of the marginal seller , the seller who would leave the market if the price were any lower. Chrissy’s cost Janet’s cost Jack’s cost
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CONSUMERS, PRODUCERS, AND THE EFFICIENCY OF MARKETS 5 $0 $10 $20 $30 $40 0 1 2 3 Producer Surplus P Q Producer surplus (PS): the amount a seller is paid for a good minus the seller’s cost PS = P – cost
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6 $0 $10 $20 $30 $40 0 1 2 3 Producer Surplus and the S Curve P Q PS = P – cost Suppose P = $25. Jack’s PS = $15 Janet’s PS = $5 Chrissy’s PS = $0 Total PS = $20 Janet’s cost Jack’s cost Total PS equals the area above the supply curve under the price, from 0 to Q . Total PS equals the
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This note was uploaded on 10/14/2011 for the course ECON 2023 taught by Professor Unknown during the Fall '05 term at Arkansas.

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Producer Surplus and Total Surplus - CostandtheSupplyCurve...

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