Question

What is producer surplus? Use references and review prior posts in the thread to avoid repetition. How does it relate to a firm’s profits?

Answer 1

Answer. Producer surplus is the amount of difference between the price at which the producer is willing to supply the goods and the actual price at which it supplies the the goods. It is the area above the supply curve and below price level.

Producer's surplus has direct relation with the profit of the firms. As, the producer surplus increases with the rise in prices , the profit of the firm increases , on the other hand if prices fall, producer surplus fall and so will the profits of the firm.