The following is an equation representing a country’s hypothetical supply of soybean, with price (P) expressed in $/bu and quantity supplied (Q) expressed in billion bu: P = 2 + 2.5 Q
a. Use a computer spreadsheet (e.g., Excel) to plot this supply curve in a graph with Q on the horizontal axis and P on the vertical axis.
b. Suppose that producers can sell as much soybean as they want at P = $10/bu. Represent graphically the producer surplus corresponding to P = $10/bu on the plot you drew in (a).
c. Calculate the producer surplus if the price of soybean is P = $10/bu and producers can sell as much soybean as they want at that price (i.e., the area you drew in (b)).
d. Suppose now that the price of soybean is P = $8/bu and producers can sell as much soybean as they want at that price. Represent graphically the producer surplus corresponding to P = $8/bu on the plot you drew in (b).
e. Calculate the producer surplus for a soybean price of P = $8/bu, assuming that producers can sell as much soybean as they want at that price (i.e., the area you drew in (d)).
f. Based on your answers to (c) and (e) above, would producers be better off or worse off if the soybean price fell from P = $10/bu to P = $8/bu? By how much?
g. In the plots you drew in (b) and (d), show graphically the change in producer surplus you calculated in (f).