Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson,Christopher Snyder

Exercise 33

A fledgling microeconomics student is having some trouble grasping the concept of short-run producer surplus. In exasperation, he blurts out, ''This is absolute balderdash. I can understand that producer surplus is a good thing for firms because it measures the improvement in their welfare relative to a situation where they cannot participate in the market. But then I'm told that fixed costs are a component of short-run producer surplus. Aren't fixed costs a bad thing? They must be paid! How can they be one component of a good thing?'' Can you set this student straight? (Hint: When is short-run producer surplus zero?)