Figure 2.10 allows us to examine how this negotiation might take place. If the resort offers a payment of C+D to the steel company, they would be better off if the steel firm responded by decreasing its production From Qm to Qstar. Let is assume that the payment is equal to this amount. Would the steel company be willing to reduce production to the desired level? If they refused the compensation, their producer surplus would be A+B+D. If they accepted, their producer surplus would be A+B plus the payment, so their total return would be A+B+C+D. Clearly,they are better off by C if they accept the payment. Further the sum of producer and producer surplus is better off by amount C as well since the economic surplus from Qm is A-C and the economic surplus for Qstar is A.