what is producer surplus? “The more the competition among the sellers, the less the producer surplus enjoyed by the producers” – do you agree with the statement. Justify your answer. Suppose, a producer is willing to sell 50Kg potato at price Tk.18/Kg. If the market price of potato is Tk.24/Kg, what will be the total producer surplus of the producer if he/she sells 50Kg potato?
Producer surplus is a measure of the economic benefit or profit that producers receive in a market transaction. It is the difference between the price at which producers are willing to sell a good or service and the actual price they receive. In other words, it represents the area above the supply curve and below the market price.
Now, let's address the statement, "The more the competition among the sellers, the less the producer surplus enjoyed by the producers". This statement is generally true, as increased competition tends to drive prices down, reducing the gap between the price at which producers are willing to sell and the market price. When there is intense competition, producers might have to accept lower prices, leading to a decrease in their producer surplus.
To calculate the total producer surplus for the given scenario, we need to consider the producer's willingness to sell at Tk.18/Kg and the market price of Tk.24/Kg. The producer surplus can be calculated by finding the area of the triangle formed by the supply curve and the price line.
In this case, the producer is willing to sell 50Kg of potatoes at Tk.18/Kg, but the market price is Tk.24/Kg. The difference between the willingness to sell price and the market price per kilogram is Tk.6 (24 - 18 = 6). Therefore, the total producer surplus can be calculated by multiplying this difference by the quantity of potatoes sold:
Producer Surplus = (Market Price - Willingness to Sell Price) * Quantity
= (24 - 18) * 50
= 6 * 50
= Tk.300
So, the total producer surplus for the producer selling 50Kg of potatoes would be Tk.300.