Subsidy Boosts Producer Revenue via Effective Price

Steps:

• Original equilibrium at intersection of D and S, determining initial price and quantity.
• Subsidy shifts supply to S', increasing quantity sold to Q' at lower market price P_c but effective producer price P_p = P_c + subsidy.
• Total revenue equals effective price P_p times new quantity Q', forming rectangular area from origin to P_p height and Q' width.
• This area decomposes into labeled regions E + R + Y on the diagram.

Why A is correct:

• A (E + R + Y) equals the full rectangle of effective price times quantity, per revenue formula TR = P_p × Q'.

Why the others are wrong:

• B: F + M + N measures government subsidy cost, not producer revenue.
• C: G + N + Y captures only part of producer surplus, excluding full revenue base.
• D: H + T + X represents consumer expenditure at market price, ignoring subsidy addition.

Final answer: A