Producer Surplus:  

Producer Surplus is used to measure the welfare of a group of firms who sell a particular product at a particular price. Producer surplus is defined as the difference between what producers actually receive when selling a product and the amount they would be willing to accept for a unit of the good. Firms' willingness to accept payments can be read off of a market supply curve for a product. Producer surplus is linked to the supply curve. Producer surplus is the difference between the amount that a producer receives from the sale of a good and the lowest amount that producer is willing to accept for that good. The greater the difference between the two prices, the greater the benefit to the producer. The market supply curve shows the quantity of the good that firms would supply at each and every price that might prevail. In other words, the supply curve tells us the minimum price that producers would be willing to accept for any quantity demanded by the market. Producers' surplus exists when actual price exceeds the minimum price sellers will accept. Thus, total producer surplus can reasonably be measured as the area between the supply curve and the horizontal line drawn at the equilibrium market price. The area representing producer surplus is measured in dollars (or monetary units). The change in producer surplus is determined as the area between the price that prevails before, the price that prevails after and the supply curve. In this case producer surplus rises because the price increases and output rises. The increase in price and output raises the return to fixed costs and the profitability of firms in the industry. The increase in output also requires an increase in variable factors of production such as labor. Thus one additional benefit to firms, not measured by the increase in producer surplus, is an increase in industry employment. Producer surplus and price discrimination are two important and related concepts that affect the profits of firms.