Economic rent
From Hobson's Choice
In the economics sense of the word, "rent" refers to the income accruing to a productive factor for which no exact substitute exists. Hence, the owner of land receives rent for its use (even the owner is the one actually using it) because of the unique opportunities afforded by the land's unique location. "Economic rents" constitute a part of the revenue stream of factors, the part greater than what is required to induce the owner to offer them on the market. Also, "monopoly rents" are the income stream that is generated by virtue of the firm's possessing a monopoly (and hence being unique.)
Source of Economic Rent
The chart below illustrates the extreme case of a monopoly:
 Click for larger image |
The shaded rust-colored area represents the rents captured by the monopolist from the consumer. However, monopoly is only one source of economic rents.
Economic rents will arise whenever a firm is continuously making profits when its competitors are not, such as when it has implemented a new technology and absorbed the sunk costs before a sharp decline in the market price of its product.
See Also
