Economic rent, Microeconomics

Economic Rent

- Economic rent is difference between what firms are willing to pay for the input less the minimum amount required to obtain it.

* An Example

- There are two firms A & B

- Both are having their own land

- A is located on the river which lowers A's shipping cost by $10,000 as compared to B
- The demand for A's river location will increase price of A's land to $10,000

- Economic rent = $10,000 

  • $10,000 - zero cost for the land

- Economic rent increases

- Economic profit of A = 0

Firms Earn Zero Profit in Long-Run Equilibrium
196_zero profit in long run.png
1303_zero profit in long run1.png

* With the fixed input such as a unique location, difference between cost of production (LAC = 7) and price ($10) is value or opportunity cost of the input and represents economic rent from the input.

* If opportunity cost of input (rent) is not taken into consideration it may appear that the economic profits exist in long run.

Posted Date: 10/12/2012 5:45:46 AM | Location : United States

Related Discussions:- Economic rent, Assignment Help, Ask Question on Economic rent, Get Answer, Expert's Help, Economic rent Discussions

Write discussion on Economic rent
Your posts are moderated
Related Questions
Where minimum efficient scale is very huge for capital intensive operations, it may be more cost effective to allow one company to spread its fixed costs over a very huge number of

Inflation is not possible under the gold standard.” Is this statement true, false, or uncertain? Explain your answer.

Consider the market for Kitty Litter. Assume this industry is purrfectly competitive and is presently in long-run equilibrium. Suppose people begin to prefer Dogs as pets and Cat

Assume that John has the following preference relation over two goods, bread and bear (x1, x2). He strictly prefers any bundle x over y whenever x haves more bear than y, whatever

Q. What do you mean by Externality? An externality exists when the actions of one individual affect the wellbeing of other individuals without any compensation taking place. F

Strong Domestic Economy: We have to realise that healthy export sector can be built up only on a strong and efficient domestic economic structure. A sound domestic economy is

Determinants of Private Demand - Non-Monetary Benefits Social status associated with university degrees is a determinant of investment decisions in higher education in the cas

Periodically, Merrill Lynch surveys its customers to determine customer satisfaction levels. They want to determine the impact of experience on the satisfaction ratings of their co

what is the theory of second best? prove the theorem with the help of a diagram.