The graph shows the supply curve of blankets and the market

The graph shows the supply curve of blankets and the market price of a blanket. Draw a point to show the quantity of blankets sold and the price. Draw a shape that represents the Producer surplus.

Solution

Equilibrium quantity = 20

(1) Producer surplus is the area between supply curve and price, and is measured as follows:

PS = (1/2) x $(30 - 15) x 20 = (1/2) x $15 x 20 = $150

(2) Total revenue = Price x Quantity = $30 x 20 = $600

(3) A horizontal price represents a demand curve for perfectly competitive market. In such a market, firm\'s equilibrium point is where price equals marginal cost.

So, when price (demand) equals supply at price of $30 and quantity of 20 units, marginal cost (MC) is equal to price equal to $30.

So, cost of producing 20 blankets = MC x quantity = $30 x 20 = $600