When producer surplus underestimates rents

Gregg Frasco and Chulho Jung

Atlantic Economic Journal, 2001, vol. 29, issue 4, 393-405

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

Date: 2001
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DOI: 10.1007/BF02299329

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