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Economic Rent
The total income received by an owner of a factor of production is made up of its economic rent and its opportunity cost.
- Economic rent is the income received by the owner of a factor of production over and above the amount required to induce that owner to offer the factor for use.
- The opportunity cost of using a factor is the income required to induce its owner to offer the resource for use, which is the value of the factor in its next best use.
The following figure illustrates the division of a factor income into economic rent and opportunity cost.
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Subject 1. Types of Profit Measures
s accounting profit. Zero economic profit does not mean that the firm is about to go out of business. Instead, it just indicates that the owners are receiving exactly the market (normal) rate of return on their investment. <span>Economic Rent The total income received by an owner of a factor of production is made up of its economic rent and its opportunity cost. Economic rent is the income received by the owner of a factor of production over and above the amount required to induce that owner to offer the factor for use. The opportunity cost of using a factor is the income required to induce its owner to offer the resource for use, which is the value of the factor in its next best use. The following figure illustrates the division of a factor income into economic rent and opportunity cost. The portion of income comprised of economic rent depends upon the elasticity of supply for the factor.
Subject 1. Types of Profit Measures
s accounting profit. Zero economic profit does not mean that the firm is about to go out of business. Instead, it just indicates that the owners are receiving exactly the market (normal) rate of return on their investment. <span>Economic Rent The total income received by an owner of a factor of production is made up of its economic rent and its opportunity cost. Economic rent is the income received by the owner of a factor of production over and above the amount required to induce that owner to offer the factor for use. The opportunity cost of using a factor is the income required to induce its owner to offer the resource for use, which is the value of the factor in its next best use. The following figure illustrates the division of a factor income into economic rent and opportunity cost. The portion of income comprised of economic rent depends upon the elasticity of supply for the factor.
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