The correct answer is: C. smaller than firm’s total profits.
Quasi rent is the difference between the actual return on a factor of production and its opportunity cost. It is a temporary economic profit that arises when a factor of production is in fixed supply.
For example, suppose a firm owns a piece of land that is very valuable for its location. The firm could rent the land out for a very high price, but it chooses to use the land itself for its business. In this case, the firm is earning quasi rent on the land.
Quasi rent is not the same as economic profit. Economic profit is the total revenue of a firm minus all of its costs, including opportunity costs. Quasi rent, on the other hand, is only the difference between the actual return on a factor of production and its opportunity cost.
Therefore, quasi rent is always smaller than economic profit. This is because economic profit includes all of the firm’s costs, including opportunity costs, while quasi rent only includes the difference between the actual return on a factor of production and its opportunity cost.
Here is a brief explanation of each option:
- Option A: Quasi rent is equal to the firm’s total profits. This is not correct because quasi rent is always smaller than economic profit, which is the total revenue of a firm minus all of its costs, including opportunity costs.
- Option B: Quasi rent is greater than firm’s total profits. This is not correct because quasi rent is always smaller than economic profit.
- Option C: Quasi rent is smaller than firm’s total profits. This is correct because quasi rent is only the difference between the actual return on a factor of production and its opportunity cost.
- Option D: Quasi rent is not related to firm’s profits. This is not correct because quasi rent is a component of economic profit, which is the total revenue of a firm minus all of its costs, including opportunity costs.