To determine a product's producer surplus, which of the following calculations is correct?

• A. Add the minimum price a seller is willing to accept to the actual price received
• B. Multiply the minimum price a seller is willing to accept by the actual price received
• C. Divide the actual price received by the minimum price a seller is willing to accept
• D. Subtract the minimum price a seller is willing to accept from the actual price received

Answer: (D)

Verified step by step guidance

1. Understand the concept of producer surplus: it is the difference between the actual price a seller receives for a product and the minimum price they are willing to accept to produce that product.
2. Identify the actual price received by the seller, often called the market price, denoted as \(P\).
3. Identify the minimum price the seller is willing to accept, which is the seller's cost or reservation price, denoted as \(P_{min}\).
4. Set up the formula for producer surplus as the difference between these two prices: \(Producer\ Surplus = P - P_{min}\).
5. Recognize that adding, multiplying, or dividing these prices does not represent producer surplus; only subtracting the minimum acceptable price from the actual price received correctly calculates producer surplus.