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| | :Producer surplus is the wealth obtained by a seller (firm) because he was able to sell his good at a price higher than what he was willing to accept. | | :Producer surplus is the wealth obtained by a seller (firm) because he was able to sell his good at a price higher than what he was willing to accept. |
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| − | :Example: if a car dealer is willing to sell a new car for $25,000, but a customer walks into his store and pays him $30,000 for it, then the car dealer has a prodcer surplus of $5,000. | + | :Example: if supply equals demand for a new car at a price of $25,000, the car dealer will receive that price even though he would be willing to sell some of those new cars for less than $25,000. His producer surplus is the sum of all of the extra amounts he received above what he was really willing to sell each car for. |
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| | + | :On a supply-and-demand graph, the "producer surplus" is the area above the supply curve but below the line at the price where the good is sold. |
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| | 9. Suppose the underlying ''labor'' market is perfectly competitive, but there is a minimum wage above the market rate. Then suppose that the supply of labor increases. Explain what the result is and why. | | 9. Suppose the underlying ''labor'' market is perfectly competitive, but there is a minimum wage above the market rate. Then suppose that the supply of labor increases. Explain what the result is and why. |
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| − | | + | :Unemployment increases, because there are no available jobs for the additional supply of labor. |
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| | 10. What is the firm's profit or loss when Q=0 in the honors discussion above? (Answer simply in terms of another cost measure.) Is the firm profitable? | | 10. What is the firm's profit or loss when Q=0 in the honors discussion above? (Answer simply in terms of another cost measure.) Is the firm profitable? |
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| | + | 11. (Challenging, with extra credit) Prove mathematically that MC>MR for all Q>0 in the honors discussion above. (Hint: define MC in terms of the change in AVC, and then regroup the terms and draw conclusions about them to show MC>MR). |
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| − | 11. (Challenging, with extra credit) Prove mathematically that MC>MR for all Q>0 in the honors discussion above. (Hint: define MC in terms of the change in AVC, and then regroup the terms and draw conclusions about them to show MC>MR).
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