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Calculating Total Producer Surplus Using Integration

When treating quantity as a continuous variable, total producer surplus can be calculated with integration for any given price P0P_0 and quantity sold Q0Q_0, irrespective of whether it's a market equilibrium point. The surplus is the integral of the price minus the marginal cost (P0C(q)P_0 - C'(q)) from zero to Q0Q_0: Total Producer Surplus = 0Q0(P0C(q))dq\int_{0}^{Q_0} (P_0 - C'(q)) \,dq. This is equivalent to the formula P0Q0C(Q0)+C(0)P_0Q_0 - C(Q_0) + C(0), where C(0)C(0) represents the firm's fixed costs. This expression effectively calculates total revenue (P0Q0P_0Q_0) minus the total variable costs (C(Q0)C(0)C(Q_0) - C(0)).

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  • Condition for Maximizing Producer Surplus: Price Equals Marginal Cost