Tradeoffs From Producing Less
When output is reduced from 40 to 39 tons, the loss of consumer surplus equals $5 ($35-$30), and the loss of producer surplus equals $2 ($30 - $28).
- The marginal cost of cutting production from 40 to 39 tons equals $7.
- The vertical distance between supply and demand at a given quantity shows the marginal cost of reducing output, or loss of surplus.