Australia produces approximately 375 million kilograms of bananas annually and the vast majority of bananas are grown in northern Queensland. Australians consume 310 million kilograms of bananas at a market clearing price of $5/kg. Now, the banana industry is successfully lobbying the government to implement a minimum price of $9/kg on bananas. The quantity demanded of bananas falls to 200 million kilograms. At 200 million kilograms, the opportunity cost of producing the last kg of bananas is $3. If the banana industry starts producing bananas as soon as the price rises above $0/kg, how much consumer surplus becomes producer surplus when the price rises from $5/kg to $9 per kg?

Answer rating: 100% (QA)

Heres how to calculate the consumer surplus lost that becomes producer surplus gained when the price increases from 5kg to 9kg Step 1 Calculate the in... View the full answer