At Nick's Bakery, the cost to make his homemade chocolate cake is $3 per cake. He sells three and
receives a total of $21 worth of producer surplus. Nick must be selling his cakes for
a. $2 each.
b. $7 each.
c. $8 each.
d. $10 each.
i can't figure this question out.
Producer surplus is price (P) less the minimum price the producer would be willing to sell ($3). So you know
3*P - $9 = 21. Ergo, P=$10.
Note: this assumes the $3 cost includes the amount Nick pays himself for his labor
To solve this question, we need to use the concept of producer surplus.
Producer surplus is the difference between the price at which a producer sells a good and the minimum price they are willing to sell it for. In this case, we know that the cost for Nick to make one chocolate cake is $3, so we can assume that this cost includes the amount he pays himself for his labor.
We are given that Nick sells three cakes and receives a total of $21 worth of producer surplus.
Let's assume that Nick sells each cake for price P. The total producer surplus can be calculated as:
3 * P - $9 (since he sells 3 cakes, the cost of production is 3 * $3 = $9)
We are given that the total producer surplus is $21, so we can write the equation as:
3 * P - $9 = $21
To find the value of P, we rearrange the equation as:
3 * P = $21 + $9
3 * P = $30
Finally, we divide both sides of the equation by 3:
P = $10
Therefore, the correct answer is d. $10 each. Nick must be selling his cakes for $10 each in order to receive a total producer surplus of $21.