Scarcity rents.
w
Suppose now that the input
suffices to produce Q
D
.
$/Q
Q/t
MR
D
C
P
A
Q
A
w
A competitive industry
would set price P
D
and
scarce factor would earn
rent (P
D
– C)Q
D
.
w
But a firm that controls all
the factor would also want
to restrict output to Q
B
.
Q
D
P
D
Q
B
P
B
w
There is now deadweight
loss.
w
The firm’s profit is now
(P
B
– C)Q
B
.
The difference between the profit and
the scarcity rent is the
monopoly rent
.
This analysis follows
Winter (1995, pp. 159-167).