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Producer Surplus watch

1. Toy Story (TS) sells toys for children around the world. The firrm faces a demand curve of
Q = 10 - 0.4P, where Q is the quantity of toys and P is price of a toy. TS has a marginal
cost curve that is equal to MC = 5Q.

(c) Define the consumer surplus and producer surplus. Derive the social welfare if TS
chooses profit maximising quantity and price. (2 marks)

In part a, I calculated the profit maximising quantities to be P=18.75 and Q=2.5. I think I have worked out consumer surplus to be (25-18.75)(2.5)/2 = 7.8125. Please can someone confirm that is correct?

I am having a few problems with calculating the producer surplus. I am not sure whether I need to derive a supply curve (and would this just be P=5Q?) or if this isn't necessary as we're calculating it from a specific price/quantity. Please can someone help?

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Updated: December 7, 2014
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