Producer surplus is equal to
A) the area under the supply curve.
B) the difference between price and average cost for all units sold.
C) the difference between price and marginal cost for all units sold.
D) the firm's profit when fixed costs exist.

Question

Quizplus · Accepted Answer

Producer surplus represents the difference between the price a producer receives for each unit sold and the marginal cost of producing that unit. Therefore, the correct choice is C, which states that producer surplus is the difference between price and marginal cost for all units sold. The other choices are incorrect because the area under the supply curve (choice A) represents total revenue, not producer surplus; the difference between price and average cost for all units sold (choice B) represents economic profit, not producer surplus; and the firm's profit when fixed costs exist (choice D) represents total profit, not producer surplus.

Producer Surplus Is Equal to