Under what circumstances will the economic rent earned by a factor of production always be zero?
A) Infinitely inelastic supply curve
B) Infinitely elastic supply curve
C) Somewhat inelastic supply curve
D) Elastic demand curve

Question

Quizplus · Accepted Answer

Economic rent is the surplus payment received by a factor of production over and above the minimum amount required to induce it to remain in its current use. When the supply curve for a factor of production is perfectly elastic (infinitely elastic), this means that there are an infinite number of alternative factors that could be used instead. As a result, any surplus payment above the minimum required to keep the factor in its current use will simply induce increased supply of the factor from other sources, driving the price down to the level of the minimum required payment. Therefore, economic rent will always be zero when the supply curve for a factor of production is perfectly elastic.

Under What Circumstances Will the Economic Rent Earned by a Factor