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A comparison of rents and producer surplus when industry input supply functions are interdependent

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  • Gregg Frasco

Abstract

The concept of producer surplus is used quite often in conventional welfare analyses. In the long run, producer surplus has no meaning unless it reflects the sum of the rents paid to factors of production. This paper demonstrates that if industry input supply functions are interdependent, then producer surplus is not equal to the sum of the rents. Furthermore, the size of the difference between producer surplus and rents can be made indefinitely large by appropriate choices of values for the relevant parameters, such as the price of output, production function parameters, the slopes of the industry input supply curves, and the degree of interdependence between input supplies. Copyright International Atlantic Economic Society 2002

Suggested Citation

  • 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.
    • Handle: RePEc:kap:atlecj:v:30:y:2002:i:4:p:403-413
    DOI: 10.1007/BF02298783
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    References listed on IDEAS

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    1. Will Martin & Julian M. Alston, 1997. "Producer Surplus without Apology? Evaluating Investments in RD," The Economic Record, The Economic Society of Australia, vol. 73(221), pages 146-158, June.
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    6. 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.
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