Larry Krovitz is a salesman who works at a used-car showroom in Sydney, Australia. It’s the last week of July but he is yet to meet his sales target for the month. A customer, Harold Kumar, who wants to buy a Ford Fiesta, walks in to the showroom. After taking one of the cars for a test drive, Harold decides to buy it. While $11,000 was the least that Larry would have been willing to accept for that car, he quotes a price of $15,000. After some bargaining, the car is sold for $12,000.
a. What is the producer surplus in this case?
b. If Larry bought the car for $8,000, what is his profit?
c. Is producer surplus always equal to profit? Explain your answer.