Assume there are three hardware stores, each willing to sell one standard model hammer in a given time period. House Depot can offer their hammer for a minimum of $7. Lace Hardware can offer the hammer for a minimum of $10. Bob's Hardware store can offer the hammer at a minimum price of $13. If the market price of price of hammers increased from $8 to $11:

A. total producer surplus would increase by $3.

B. total producer surplus would increase by $6.

C. total producer surplus would increase by $9.

D. total producer surplus would increase by $4.

The correct answer is option D.

Explanation:

There are three hardware stores, each willing to sell one standard model hammer in a given time period.

House Depot can offer their hammer for a minimum of $7.

Lace Hardware can offer the hammer for a minimum of $10.

Bob's Hardware store can offer the hammer at a minimum price of $13.

The producer surplus is the difference between the minimum price that a producer is willing to accept and the price he actually gets.

At a price of $8 only House Depot will suppl.

Total producer surplus will be

= $8 - $7

= $1

At price $11 Home Depot and Lace Hardware will supply.

Total producer surplus will be

= ($11 - $7) + ($11-$10)

= $4 + $1

= $5

The increase in producer surplus

= $5 - $1

= $4