Producer Surplus

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    Producer Surplus

    • Producer surplus is much like consumer surplus
    • As producers aim to maximise profits, they will be keen to supply to consumers who are willing to pay a price above what the producers are normally willing to accept
    • If we go back to the previous table and suppose that the producer has a baseline price of £350 per holiday:
      • This is what, on average, the firm might see as a fair price for a holiday to Ibiza
      • However, there are more likely to be more consumers that are willing to pay over this price
      • So, when they pay this, they will be providing additional revenue to the producer – above what is the normal expectation
    • This is what is meant by producer surplus

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