Producer surplus is the amount that producers benefit by selling at a market price that is higher than the lowest price they would sell for. Similarly speaking, producer surplus is the difference between what a producer actually gets for a product and the lowest possible price it is willing to sell the product. The lowest possible price a producer is willing to sell a product is usually the average total cost of it.
In mathematical calculation,
Producer surplus = Amount received by sellers – Cost to sellers
We use the tool of producer surplus in much the same way as we do with consumer surplus in measuring the well-being of buyers.
Just as consumer surplus is abstracted from demand curve, producer surplus is closely related to the supply curve in the theory of supply and demand.
Producer surplus is a type of economic surplus.