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

What is average revenue and average revenue curve, What is average revenue ...

What is average revenue and average revenue curve Average Revenue:   The average revenue is the total revenue separated by the level of output. It is therefore the price.

Marginal utility and indifference curve, Marginal Utility and Indifference ...

Marginal Utility and Indifference Curve - If the consumption of a product moves along an indifference curve, additional utility derived from the increase in consumption of sing

Consumer behavior, what are the properties of marshallian demand function

what are the properties of marshallian demand function

Microeconomics assignment, suppose the production function is given as:X=b0...

suppose the production function is given as:X=b0Lb1Kb2,where b0=level of technology find marginal product of factors(MPL0and MPK) find factor intensity

Marginal product of every of the two inputs, (Cost minimization) a)  Wh...

(Cost minimization) a)  What are the expressions for the marginal product of every of the two inputs in producing credit hours? b)  What is the expression for the marginal r

Keynes theory and expectations, Expectations played a major role in Keynes'...

Expectations played a major role in Keynes' theory of the determination of aggregat output and employment in market economies in the short run. Expectations about future yields on

When is tax to society cause a deadweight loss, When is tax to society caus...

When is tax to society cause a deadweight loss? Applying Consumer and Producer Surplus: The Efficiency Costs of a Tax A tax causes a deadweight loss to society, since les

Chapter 8, once vaccinated,a person cannot catch a cold or give a cold to s...

once vaccinated,a person cannot catch a cold or give a cold to someone else. As a result,the marginal social benefit resulting from consumption of the vaccine.

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