The world price for oil is $31 per unit. The supply of domestic oil is: QS = 0.15P - 2.7. Domestic ...

At the world price of $31 per unit, domestic oil producers will bring 1.95 units to the market.  The highest price where domestic producers will not bring any oil to market is $18.  Producer surplus is: PS =  (31 - 18)1.95 = 12.675.  If the government pays domestic oil producers an additional $2 per unit to produce oil, producers will raise quantity supplied to QS' = 0.15(31 + 2) - 2.7 = 2.25.  Producer surplus is: PS =   (31 + 2 - 18)2.25 = 16.875. The government is paying $2 per unit for each of the 2.25 units.  Total government payments are $4.50.  The increase in producer surplus is $4.20.  The increase in domestic producer surplus does not exceed the payments made by government.  If government directly gave oil producers $4.50 without the subsidy, oil producers would be better off.