In a producer surplus, businesses sell the product at a higher price than they are willing to sell.
For example, the cost of a product is 10 USD, and the company is willing to sell it at 12 USD, but they decide to sell it at 15 USD. In this case, the producer surplus of 3 USD is the difference between the minimum and selling prices.
Producer Surplus = Total Revenue – Total Price
Producer surplus plus market surplus is the total benefit to all participating parties involved in the production and trade of the product. It is called an economic surplus.
Summary
The producer surplus is the difference between the price at which the producer sells its product and the minimum price they are willing to sell it at. A producer surplus creates profit for the businesses and provides an incentive to continue production, update the product and launch new innovative products.