E202Solutions5.5

E202Solutions5.5 - 5. Is a companys producer surplus the...

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5. Is a company’s producer surplus the same as its profit? (Hint: A company’s total cost is equal to the sum of all marginal costs incurred in producing its output, plus any fixed costs.) Answer : No, they differ by fixed costs. Profit is the difference between the company’s total revenue and its total cost. Producer surplus is the difference between total revenue and the firm’s reservation price for the quantity it sells. Its reservation price is the marginal costs of producing each unit. So producer surplus is the difference between total revenue and the sum of all marginal costs incurred. That is not the same as profit, which is total revenue minus the sum of not only all marginal costs incurred, but also fixed costs. 6. In Charlotte, North Carolina, citizens can get their electric power from two sources: a hydroelectric generator and a coal-fired steam generator. The hydroelectric generator can supply up to 100 units of power per day at a constant marginal cost of one cent per unit. The steam
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This note was uploaded on 02/20/2012 for the course ECON 202 taught by Professor Brightwell during the Spring '08 term at Texas A&M.

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