Economic rent, Microeconomics

Assignment Help:

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.


Related Discussions:- Economic rent

Foreign exchange markets, FOREIGN EXCHANGE MARKETS: A foreign exchange...

FOREIGN EXCHANGE MARKETS: A foreign exchange market (sometimes informally called the forex market, or denoted FEM) is a market in which different currencies are bought and sol

Explain hard currency, International economic relations also vary, in large...

International economic relations also vary, in large measure, on monetary issues.  You are unlikely to accept the Turkish Lire in payment for your wages in this country, easily bec

ELASTICITY, 2. Suppose the price of printing paper for digital cameras has ...

2. Suppose the price of printing paper for digital cameras has recently risen by 10 percent due to an increase in the cost of materials used in the finish for the paper. As a resu

Rational producer, in the context of managerial economics how do you explai...

in the context of managerial economics how do you explain a rational producer.illustrate giving example.

Perfect competition, At a market price of $21 a toy, what quantity does the...

At a market price of $21 a toy, what quantity does the firm produce in the short run and does the firm make a positive economic profit, a zero economic profit, or an economic loss?

Japanese and American production, What is the graph of the production possi...

What is the graph of the production possibilities frontiers for the American and Japanese economies if American worker can produce 10 tons of grain a year and Japanese worker can p

What is a natural monopoly, What is a natural monopoly Define natural m...

What is a natural monopoly Define natural monopoly as a situation where the advantages of scale a fixed costs are so high that it is impossible to fully exploit them. MC and AC

Nature and types of resource, Normal 0 false false false ...

Normal 0 false false false EN-IN X-NONE X-NONE MicrosoftInternetExplorer4

Application on infifference curve , i want an application on indifference c...

i want an application on indifference curve of a specific firm? can i get it easily?

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd