An individual seller's producer surplus on a unit of a good is
A)zero in perfect competition
B)zero in monopoly
C)greater than the buyer's consumer surplus on that unit
D)an example of a side payment
E)the difference between the price the seller receives and the cost of producing that unit.

Question

Quizplus · Accepted Answer

Producer surplus is the difference between the price the seller receives and the cost of producing that unit. In perfect competition, there is a zero producer surplus as the price is equal to the cost of production. In monopoly, the producer surplus can be substantial as the monopolist can charge a higher price than the cost of production. The producer surplus is also greater than the buyer's consumer surplus on that unit as consumers are willing to pay the market price for the good. The producer surplus is not an example of a side payment as it is a legitimate profit earned by the seller.

An Individual Seller's Producer Surplus on a Unit of a Good