What is meant by producer surplus?

Producer surplus refers to the additional benefit producers receive when they sell a product at a price higher than the minimum they would be willing to accept for that product. It is calculated as the difference between the market price of the good and the marginal cost of producing that good. When producers sell at a higher price, they earn more than what it costs them to produce the last unit of output, leading to a surplus.

This concept is crucial in understanding market efficiency and how producers are incentivized in the marketplace. It shows that producers are willing to provide goods not just for covering their costs but also to gain additional profit. The higher the market price compared to the marginal cost, the greater the producer surplus, which can encourage more production in the market.

The other choices involve different economic concepts. While total revenue and total costs relate to profitability, surplus from excess inventory concerns stock management. The profit after taxes and subsidies does not specifically address the relationship between price and marginal cost directly, which is central to understanding producer surplus.