Graph out this situation using a single supply and demand diagram representing one firm. Label the initial equilibrium price and quantity (P1, Q1); Then demand increases, creating an excess demand. The firm can either respond by increasing price along a stationary supply curve – label this equilibrium price and quantity with (P2, Q2); or by increasing supply – label this equilibrium price and quantity with (P3, Q3).
In your diagram, label the producer surplus areas under both equilibriums (P2, Q2) and (P3, Q3).
My question- Does this look right? I think the graph is right but unsure about the labeling the producer surplus area under both equlibriums.
