What is the difference between economic rent and economic profit?

Question

I've been having a hard time understanding the distinction between economic rent and economic profit. As far as I understand it, the terms mean as follows:

1. Economic rent is any revenue received by the owner of a factor of production (as a result of its use) in excess of the cost of bringing that factor into production. It can arise from the ownership of land and natural resources, the ownership of intellectual property such as patents and copyrights, or a market being in a state of imperfect competition wherein one or more economic entities have some level of market power and can act as price-setters instead of price-takers.

2. Economic profit is the difference between the revenue that an economic entity has received from its outputs and the economic cost of its inputs. The economic cost includes both accounting (explicit) and opportunity (implicit) costs. An economic profit of zero (also known as a state of "normal profit") is the minimum profit level that a company needs to achieve in order to justify its continued operation. In a perfectly competitive market that has reached long-run economic equilibrium, no one makes any economic profit, and there is no incentive for companies to enter or leave the industry.

What is the difference between these two concepts? Under this broader question, I have two sub-questions:

1. Is the cost of production referenced in the definition of economic rent the accounting cost or the economic cost? In other words, does it include the opportunity cost? If it's the accounting cost, then what makes economic rent different from accounting profit? If it's the economic cost, then what makes economic rent different from economic profit?

2. Can economic rent exist in a market without economic profit or vice versa?

Thank you for any answers that you can provide.

Answer 1

I do not think you have the correct definition of rent there. Or to be more clear maybe that is the definition used in some subfields of economics as language can sometimes differ between subfields. Also what you have there seems to be closer to definition of quasi-rent. Generally the definition of economic rent that you will find in textbooks is the same that is given by OECD:

In modern economics, rent refers to the earnings of factors of production (land, labour, capital) which are fixed in supply. Thus, raising the price of such factors will not cause an increase in availability but will increase the return to the factor. This differs from the more common usage of the term, whereby rent refers to payments for the use of a resource.

So the first difference between rent and economic profit is that rent is the return on factors of production that are supplied to the market. Goods and services intended for final consumption are not factors of production.

The second difference is that goods and services are not fixed in supply. Even a monopolist that enjoys economic profit thus does not necessarily earn rents because the production quantity of monopoly is not fixed and it will respond to changes in revenues.

However, in some cases rents and quasi-rents can be equal to economic profit. Again following the OECD explanation:

Economists use the term economic rent to denote the payment to factors which are permanently in fixed supply and quasi-rent to denote payments for factors which are temporarily in fixed supply. The presence of economic rents implies that the factor can neither be destroyed nor augmented. Quasi-rents exist when factors can be augmented over time, or when their supply can be reduced over time through depreciation. Factors which earn economic or quasi-rents typically are paid an amount in excess of their opportunity costs.

In the case of economic rents the supplier receives a payment in excess of the amount required to induce the supplier to supply the factor. Quasi-rents, on the other hand, are returns in excess of that required to keep the factor active, but may not be sufficient to have induced the supplier to enter in the first place. When the availability of a good is artificially restricted (for example by laws limiting entry), then the increased earnings of the remaining suppliers are termed monopoly rents. The potential existence of monopoly rents provides an incentive for firms to pay for the right to earn these rents.

Answer 2

The cost of production referenced in the definition of economic rent is the opportunity cost, which is the value of the next best alternative use of the resources used in production. This is different from the accounting cost, which is the actual cost incurred in the production process.

Economic rent is the excess of the revenue from the sale of a product over the opportunity cost of the resources used to produce it. In other words, it is the profit that remains after accounting for the opportunity cost of the resources used in production. This is different from accounting profit, which is the excess of revenue over the actual cost incurred in the production process.

It is possible for economic rent to exist in a market without economic profit, or vice versa. Economic rent is the excess of the revenue from the sale of a specific product over the opportunity cost of the resources used to produce it. Economic profit, on the other hand, is the excess of total revenue over the total opportunity cost of all the resources used in the production process.