How to Calculate Producer Surplus
Producer surplus is the area above the supply curve and below the price — for a straight-line supply curve, ½ × quantity × (price − minimum acceptable price).
Formula
Steps
- 1Find the market price and quantity. The equilibrium price and quantity sold (or the given price).
- 2Find the supply curve's price intercept. The lowest price at which any seller would supply — where supply meets the price axis.
- 3Compute the triangle. Height = price − supply intercept; base = quantity. Producer surplus = ½ × base × height.
Worked example
If supply meets the price axis at $2, the market price is $8, and quantity is 30, producer surplus = ½ × 30 × (8 − 2) = ½ × 30 × 6 = $90.
Frequently asked questions
What is the difference between producer surplus and profit?
Producer surplus is price minus the seller's marginal cost on each unit, ignoring fixed costs; profit subtracts total cost. In the short run they differ by fixed costs.
What increases producer surplus?
A higher market price or a rightward demand shift raises producer surplus; a price ceiling below equilibrium or a tax on sellers shrinks it.
How do you get total surplus?
Total surplus = consumer surplus + producer surplus — the whole triangle between demand and supply up to the equilibrium quantity. It is maximized at competitive equilibrium.
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