Ihe Ihen und Ieth Ihowl

A ÞodcasL abouL 1he MarkeL Supply
Curve and Þroducer Surplus
CanLaloupes!
MarkeL supply curve Ŷ obLalned by addlng up all Lhe supply curves of all Lhe
lndlvldual flrms ln Lhe markeL
Supply Curve #1
Can l see your
supply curve?
Cf course!
Supply Curve #1 ConLlnued
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2 4 6 8
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Canta|oupes
Markey Supply Curve #2
Can l see your
supply curve?
Sureţ l'd love Lo
help a fellow
canLaloupe lover!
Supply Curve #2
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MarkeL Supply Curve
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MarkeL Supply Curve (conLlnued)
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eL's look aL lL a dlfferenL way
Þrlce CuanLlLy
1 2
3 4
6 6
11 8
Þrlce CuanLlLy
1 4
3 8
6 10
11 12
Þrlce CuanLlLy
1 6
3 12
6 16
11 20
eL's 1alk AbouL SmooLh
Anywayţ Lhe smooLhness depends onť
marglnal cosL!
1he Slope
Slope depends on Lhe marglnal cosL!
-ow Lo ShlfLs
ShlfLsť AffecLed by Marglnal CosL
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Crlglnal
up
uown
Þroducer surplus
W ls Lhe dlfference beLween Lhe prlce recelved
by a flrm for an addlLlonal lLem sold and Lhe
marglnal cosL of Lhe lLem's producLlonŤ for Lhe
markeL as a wholeţ lL ls Lhe sum of all Lhe
lndlvldual flrms' producer surplusesţ or Lhe
area above Lhe markeL supply curve and
below Lhe markeL prlceŦ
ample 1
W eL's say LhaL Lhe marglnal cosL for me Lo sell
8llnk 182 LlckeLs ls $ 30Ŧ
W And leLs say LhaL l can sell a LlckeL for $60Ŧ
W 1hen my producer surplus would be (60ŴS0)ƹ
510Ŧ
ample 2
W And now leL's say Lo sell one LlckeLţ my
marglnal cosL would be 40ţ buL l would sell lL
for 43Ŧ 1he producer surplus would be $3Ŧ
SŴ0 ƹ S
ample 3
W lf Lhe prlce of Lhe LlckeLs ls $33 l sold 2 LlckeLs
and my producer surplus would be $33 (33Ŵ
20) for Lhe flrsL LlckeL and $23 (33Ŵ30) for Lhe
second LlckeLŦ My LoLal producer surplus ls $60
SS Ŷ 20 ƹ 53S
SS Ŷ 30 ƹ 52S
ƹ 60
Þroducer Surplus Craphlcally
W ?ou can geL lL by addlng up Lhe producer
surplus for all producers or by looklng aL Lhe
area above Lhe markeL supply curve and
below Lhe prlce
ÞroflLs and Þroducer Surplus
W Þrof|tsƹ tota| revenue Ŷ tota| cost
W Þroducer surp|usƹ d|fference between the
pr|ce and Lhe marg|na| cost of every unlL
AnoLher eample
W Suppose Lhe prlce of flylng cars ls $80
W And leL's say you are wllllng Lo produce 3 of LhemŦ 1he LoLal
revenue would be $240Ŧ And Lhe LoLal cosLs are 130Ŧ
W 1he LoLal proflL
20Ŵ1S0ƹ 590Ŧ
W ow abouL producer surplus?
Þroducer surp|us ƹ (ÞŴMC1)+ (ÞŴMC2)+ (ÞŴMC3)
W Je plug ln Lhe numbers
80 for all Lhe Þ's
20 for MC1
30 for MC2 and 30 for MC3
flnal answer as $140Ŧ
uaLlons
W noLlce LhaL Lhe dlfference ls $30Ŧ 1haL number
euals Lhe fled cosLs of our flrmŦ
producer surp|us ƹ prof|t +f|ed costsŦ
W marglnal cosLsť we now know LhaLť
sum of marg|na| costsƹ tota| costsŴ f|ed costsƹ
var|ab|e costsŦ
uaLlons (conLŦ)
W producer surp|us ƹ (ÞÇ) Ŵ sum of marg|na| costs
Jhere Þ ls prlce of Lhe goodsţ and C ls Lhe uanLlLy
W Slnce we know LhaL ÞC ls LoLal revenueţ and Lhe
sum of marglnal cosLsŦ Je flndť
Þroducer surp|us ƹ (tota| revenue Ŷ (tota|
costsŴ f|ed costs)
W Þroducer surp|us ƹ prof|ts + f|ed costs
Ŵbecause proflLs eual LoLal revenue mlnus
LoLal cosLsŦ
evlew from book
W Þroducer surplus ls Lhe prlce a flrm recelves for
selllng a unlL of a producL mlnus Lhe marglnal
cosL of produclng LhaL unlLŦ
W 1he producer surplus for a flrm ls Lhe area below
Lhe prlce llne and above Lhe flrm's supply curveŦ
W lor all Lhe flrms ln a markeLţ Lhe producer surplus
ls Lhe area below Lhe prlce llen and above Lhe
markeL supply curveŦ
W Þroducer surplus ls dlfferenL from proflLsŦ
Þroducer surplus ls greaLer Lhan proflLs by Lhe
amounL of fled cosLs

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