What is producer surplus and how is it represented on a supply curve?

• A. The area under the supply curve up to the quantity sold.
• B. The area between the demand curve and the price paid.
• C. The total cost of production.
• D. The area between the price received and the supply curve, up to the quantity sold.

Answer: (D)

Producer surplus is the extra amount producers earn because the market price is higher than their cost of producing each unit. On a graph, the supply curve shows the marginal cost of producing additional units. If you draw a horizontal line at the market price, the producer surplus is the area between that price line and the supply curve, up to the quantity sold. This captures the total gap between what producers receive and what they would have to pay to produce those units.

This is different from the total cost of production (which is the area under the supply curve) and from consumer surplus (which is the area between the demand curve and the price).