What Is Producer's Surplus?

The term producer’s surplus first appears in A. Marshall’s Principles of Economics [11, p. 811, f. 2], taking shape as the area between the competitive equilibrium price and the supply curve, a curve that slopes upward as a result of placing the firms in order of diminishing efficiency. Thus the supply curve may be taken as a curve of marginal cost ¹ for the industry with the producer’s surplus derived therefrom being in the nature of a rent attributable ultimately to the specialized factors that initially confer differential advantages on the firms employing them. Discussing the term in connection with consumer’s surplus in appendix K [11, pp. 830-1], Marshall appears to extend the term so as to comprehend all the surpluses a man derives as producer, including a ‘worker’s surplus’ arising from the sale of his personal services and a ‘saver’s surplus’ arising from the services of his capital. ²