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

Gregg Frasco

Atlantic Economic Journal, 2002, vol. 30, issue 4, 403-413

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

Date: 2002
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DOI: 10.1007/BF02298783

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