what is a producer surplus 
producer surplus is the difference between how much a person would be willing to accept for a given quantity of a good versus how much they can receive by selling the good at the market price the difference or surplus amount is the benefit the producer receives for selling the good in the market a producer surplus is generated by market prices in excess of the lowest price producers would otherwise be willing to accept for their goods this may relate to walras law investopedia jiaqi zhouunderstanding producer surplusa producer surplus is shown graphically below as the area above the producer s supply curve that it receives at the price point p i forming a triangular area on the graph the producer s sales revenue from selling q i units of the good is represented as the area of the rectangle formed by the axes and the red lines and is equal to the product of q i times the price of each unit p i because the supply curve represents the marginal cost of producing each unit of the good the producer s total cost of producing q i units of the good is the sum of the marginal cost of each unit from 0 to q i and is represented by the area of the triangle under the supply curve from 0 to q i subtracting the producer s total cost the triangle under the supply curve from his total revenue the rectangle shows the producer s total benefit or producer surplus as the area of the triangle between p i and the supply curve the size of the producer surplus and its triangular depiction on the graph increases as the market price for the good increases and decreases as the market price for the good decreases special considerationsproducers would not sell products if they could not get at least the marginal cost to produce those products the supply curve as depicted in the graph above represents the marginal cost curve for the producer from an economics standpoint marginal cost includes opportunity cost in essence an opportunity cost is a cost of not doing something different such as producing a separate item the producer surplus is the difference between the price received for a product and the marginal cost to produce it because marginal cost is low for the first units of the good produced the producer gains the most from producing these units to sell at the market price each additional unit costs more to produce because more and more resources must be withdrawn from alternative uses so the marginal cost increases and the net producer surplus for each additional unit is lower and lower profit is a closely related concept to producer surplus however they differ slightly economic profit takes revenues and subtracts both fixed and variable costs producer surplus on the other hand only takes off variable marginal costs consumer surplus and producer surplusa producer surplus combined with a consumer surplus equals overall economic surplus or the benefit provided by producers and consumers interacting in a free market as opposed to one with price controls or quotas if a producer could price discriminate correctly or charge every consumer the maximum price the consumer is willing to pay then the producer could capture the entire economic surplus in other words producer surplus would equal overall economic surplus however the existence of producer surplus does not mean there is an absence of a consumer surplus the idea behind a free market that sets a price for a good is that both consumers and producers can benefit with consumer surplus and producer surplus generating greater overall economic welfare market prices can change materially due to consumers producers a combination of the two or other outside forces as a result profits and producer surplus may change materially due to market prices producer surplus examplesay that there are 20 companies that make widgets each producing them at slightly different costs ranging from 2 50 to 3 50 per widget in the market there is an equilibrium point where the amount of widgets supplied meets demand at 3 00 the producer surplus would define those producers who can make widgets for less than 3 00 down to 2 50 while those whose costs are up to 3 50 will experience a loss instead for the lowest cost producer they would enjoy a surplus of 0 50 per widget 