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Suppose five construction companies have the ability to build a factory overseas to produce a manufactured good
Suppose five construction companies have the ability to build a factory overseas to produce a manufactured good. The marginal cost of building a factory for each construction company is shown in the table below.
| Producer | Marginal Cost |
|---|---|
| Company 1 | $1,000,000 |
| Company 2 | $1,250,000 |
| Company 3 | $1,300,000 |
| Company 4 | $1,350,000 |
| Company 5 | $1,500,000 |
If the market price of an overseas factory is $1,375,000, what is the surplus for these five companies?
Expert Solution
The surplus for the construction company is the positive difference between the market price (revenue) and the marginal cost of the factory.
Surplus / (Loss) = Market Price - Marginal Cost
| Producer | Market Price (a) | Marginal Cost (b) | Surplus / (loss) (a-b) |
|---|---|---|---|
| Company 1 | $1,375,000 | $1,000,000 | $375,000 |
| Company 2 | $1,375,000 | $1,250,000 | $125,000 |
| Company 3 | $1,375,000 | $1,300,000 | $75,000 |
| Company 4 | $1,375,000 | $1,350,000 | $25,000 |
| Company 5 | $1,375,000 | $1,500,000 | ($125,000) |
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