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Producer Surplus
Producer surplus is a triangular area on a diagram (in red), below the market price line and above the supply curve. This is where the producer will make a monetary surplus. Looking at the graph, to supply at Q1 the supplies must recover P1 to cover all costs including normal profit. If the market price is higher than this (P*) then the supplier earns product surplus (an additional amount of money over and above the minimum revenue they must receive in order to supply).

Page last updated on 20/10/13