Answer Happy

(1) (6 points) Explain why producer surplus is defined by its
variable profit.
(2) (18 points) Graphically illustrate that individual firm’s
change in producer surplus following an increase in output price
can be decomposed into two areas:
(a) the change in variable profit when the firm produces the
output level where AVC is minimal; and
(b) the change in variable profit when the firm producing the
rest of output.