The supply and demand curves for a product are as follows. What is producer surplus in this market?
$Q_D=45-2P$
$Q_S=-15+P$

• A. 6.25
• B. 12.5
• C. 15
• D. 20
• E. 25

Answer: (B)

Verified step by step guidance

1. Identify the demand and supply equations: Demand (Q_D) is given by Q_D = 15 - 2P and Supply (Q_S) is given by Q_S = -15 + P.
2. Find the equilibrium price and quantity by setting Q_D equal to Q_S. Solve the equation 15 - 2P = -15 + P to find the equilibrium price (P*).
3. Substitute the equilibrium price (P*) back into either the demand or supply equation to find the equilibrium quantity (Q*).
4. Calculate the producer surplus, which is the area above the supply curve and below the equilibrium price. This can be found using the formula for the area of a triangle: Producer Surplus = 0.5 * (Base * Height), where the base is the equilibrium quantity (Q*) and the height is the difference between the equilibrium price (P*) and the price at which the supply curve intersects the price axis (P_intercept).
5. Determine the price at which the supply curve intersects the price axis by setting Q_S = 0 and solving for P. Use this price as P_intercept in the producer surplus calculation.