What Is a Producer Surplus?

Producer surplus refers to the extra income brought to the producer due to the difference between the minimum supply price of production factors and products and the current market price, that is, the actual income obtained by the owner of the production factor and the product provider in market transactions The difference between it and the smallest gains it is willing to accept. From a geometric point of view, it is equal to the area of the triangle above the supply curve and below the market price.

Producer surplus

Producer surplus refers to the amount obtained by the seller minus its minimum acceptable amount.

Simply put, producer surplus refers to the price a seller gets from selling an item or service minus the lowest acceptable price for the seller. If a movie company provides a movie for sale at a price of no less than 10 yuan, and consumers are willing to pay 40 yuan to buy it, and eventually the movie company sells it at 40 yuan, the producer's surplus is 30 yuan.

Producer surplus is where the producer's income is greater than

Producer surplus is the value-added part of human resource creation, which includes

It is known that manufacturers engaged in production or management always pursue maximum profit, and the condition for ensuring maximum profit is to make MR = MC. As long as MR> MC, the manufacturer is advantageous. Because in a perfectly competitive market, the demand curve of the manufacturer is a horizontal straight line, so that the marginal profit is equal to the product price (MR = P), so as long as the price P is higher than the marginal cost MC, the manufacturer can obtain the producer surplus. At this time, the total price or total payment actually accepted by the manufacturer is the total profit below the price line, and the minimum total price or total payment that the manufacturer is willing to accept is the total marginal cost below the marginal cost line. Represented by a graph, the area enclosed by the price straight line and the marginal cost curve is the producer's surplus, as shown by the shaded area in (a).

Producer surplus case analysis

In the short term, producer surplus can also be measured by the difference between the total revenue of the manufacturer and the total variable cost. Because in the short term, the firm's fixed costs cannot be changed, and the total marginal cost must equal the total variable cost. When the output is 1, the variable cost is the marginal cost, that is, VC (1) = MC (1), when the output is 2, VC (2) = MC (1) + MC (2), and so on , VC (Q) = MC (1) + MC (2) + ... + MC (Q). It shows that the variable cost can be expressed by the area between the marginal cost curve and the horizontal axis. In addition, in the short term, whether the manufacturer produces or does not produce, fixed costs must be paid. In fact, as long as the price is higher than the variable cost, the manufacturer's production is advantageous. At this time, continuing production can not only recover all the variable costs, but also compensate some fixed costs, which can reduce losses; if the manufacturer does not produce, it will lose all the fixed costs. So the area of the shaded rectangular CPEB in the figure (b) above is the producer surplus, which is equal to the total revenue minus the total variable cost.

The concepts of producer surplus and consumer surplus are very useful tools in economic efficiency analysis, fiscal policy analysis, and welfare analysis.