A competitive firm maximizes its profits (or minimizes is losses) by producing the quantity where the market price equals the firm's producer surplus. The whole amount that a producer makes when they create and sell a certain amount of an item at the going rate is known as the producer surplus.
The producer surplus is equal to the entire revenue from sales of a producer's goods minus the marginal cost of production. The benefit to sellers of participating in a market is measured by producer surplus. It is calculated as the price paid to a seller less the cost of manufacturing.
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