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Producer Surplus

Producer surplus is the reward entrepreneurs acquire from selling a given commodity, this is calculated by deducting revenues from sales and also ensuring that minimum possible cost of production of the goods to be sold is realized. To measure this, consider some goods produced and the least possible amount of money this producer could accept for his goods. The excesses of this minimum prices the producer would willingly take for his goods, act as benefits the producer incurs in the long run. Therefore to generate this,consider a competitive market that will ensure a surplus of market prices. If the producer is willing to take the lowest possible amount,then define this as producer surplus. This could be illustrated graphically as below;

producer surplus assignment help

The area above the supply curve defines the producer surplus which either increases or decreases depending on whether market prices increases or decreases. The graph shows that the area of the triangle above the supply curve increases as the prices increase and decreases as prices decrease. This explains the reason why the producer is necessarily not static. Whenever the market offers the producer several prices, then the producer picks the highest with atleast one lower price if it is presumed that the producer would rather have willingly opted for this minimal price then the difference is what gives the producer surplus.

Another major use and application of the producer’s surplus is that it measures rewards to suppliers’ who interact with consumers in the market.