ABC Company incurs a cost of 50 cents to produce a dozen eggs, while XYZ Company
ID: 1254687 • Letter: A
Question
ABC Company incurs a cost of 50 cents to produce a dozen eggs, while XYZ Company incurs a cost of 70 cents to produce a dozen eggs. Which of the following price increases would cause both companies to experience an increase in producer surplus?(A)The price of a dozen eggs increases from 40 cents to 55 cents.
(B)The price of a dozen eggs increases from 55 cents to 70 cents.
(C)The price of a dozen eggs increases from 55 cents to 75 cents.
(D)All of these price increases would cause both companies to experience a loss in producer surplus.
Explanation / Answer
(C)The price of a dozen eggs increases from 55 cents to 75 cents. This option is right. This is because , in case the price of eggs becomes 75 cents per dozen, each of the company will have a revenue > cost of production , ie. both company will have profits. So, it is the right choice, as it increases both's producer's surplus.