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When producer surplus underestimates rents

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  • Gregg Frasco
  • Chulho Jung

Abstract

This paper demonstrates for the long run that producer surplus exactly equals the sum of rents paid to competitively purchased inputs and fails to account for rents paid to monopsonized inputs. Therefore, in the long run, whenever one or more inputs are subject to monopsony buying power, producer surplus underestimates rents. Because the concept of producer surplus is often used to help compare the welfare effects of alternative economic policies, the result is significant. Copyright International Atlantic Economic Society 2001

Suggested Citation

  • Gregg Frasco & Chulho Jung, 2001. "When producer surplus underestimates rents," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 29(4), pages 393-405, December.
    • Handle: RePEc:kap:atlecj:v:29:y:2001:i:4:p:393-405
    DOI: 10.1007/BF02299329
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    References listed on IDEAS

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    Cited by:

    1. Tehrani Nejad Moghaddam, Alireza & Michelot, Christian, 2009. "A contribution to the linear programming approach to joint cost allocation: Methodology and application," European Journal of Operational Research, Elsevier, vol. 197(3), pages 999-1011, September.
    2. Gregg Frasco, 2002. "A comparison of rents and producer surplus when industry input supply functions are interdependent," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 30(4), pages 403-413, December.

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