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Producer surplus in a market is best described as the benefit producers gain because the price they receive is:
Abelow the maximum price buyers are willing to pay
Bequal to the average total cost of production
Cfixed by the government at a guaranteed level
Dabove the minimum price at which they would supply
Answer & Solution
Correct answer: D. above the minimum price at which they would supply
1. Producer surplus is the gain from selling a unit above its production cost.
2. It arises when the market price exceeds the minimum price at which sellers would supply that unit.
3. Graphically it is the area above the supply curve and below the price line.
4. The 'below the maximum buyers would pay' option describes consumer surplus, a different concept.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 2 Unit III "Supply", p.12_
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