Problem
A fledgling microeconomics student is having some trouble grasping the concept of short-run producer surplus. In exasperation, he blurts out, ‘‘This is absolute balderdash. I can understand that producer surplus is a good thing for firms because it measures the improvement in their welfare relative to a situation where they cannot participate in the market. But then I'm told that fixed costs are a component of short-run producer surplus. Aren't fixed costs a bad thing? They must be paid! How can they be one component of a good thing?'' Can you set this student straight? (Hint: When is short-run producer surplus zero?)
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.