In a perfectly competitive market, how does a decrease in production costs affect the supply curve and the resulting producer surplus, considering market efficiency?

A lower production cost shifts the supply curve to the right because each firm can produce more at every price level. The new supply curve intersects the unchanged demand curve at a lower equilibrium price and a higher quantity, so the market price falls while the quantity sold rises. Producer surplus, the area above the supply curve and below the price, expands because producers now receive the same price for more units and the supply curve is lower, so the triangle of surplus grows. In a perfectly competitive market this shift improves allocative efficiency by reducing the deadweight loss that would have existed if firms had higher costs, and the extra producer surplus is a reflection of the welfare gain from cheaper inputs.