If the firm had had to sell each unit at its marginal sale price its total revenue would be the blue area to the right. Instead though, firms usually sell all units at the same price, in this case $14.

    This means that the firm could have been persuaded to sell 8 units for a total revenue equal to the blue area or 1/2 x 8 x 14 = $56. Instead, it earns revenue of $112 so the yellow area is producer surplus, also equal to $56.

Copyright © 1995-2004 OnLineTexts.com, Inc. - All Rights Reserved