1. equal the area over the supply curve of the input below the price actually paid for it.
2. equal the total revenue from the sale of it minus the total cost of it to the producers of final products.
3. equal the entire total revenue from sale of it in a free market in which there are many purchasers and sellers.
4. equal the price paid for the input minus the average per-unit cost of making it available.
Choose the option that yields the correct answer.
Option 3 is the correct one. Since the input is freely available to to the community its alternative opportunity cost is zero. The entire payment for the input will thus be economic rent. The issue to be resolved is whether all of the rent will be paid to the owner of the input or some of it will be captured by the buyer. As long as there are many buyers and sellers of the input and the market is free to function, competition among the buyers will drive the price paid for the input to the point where all rents are paid to the sellers. For this reason, option 3 beats option 1. Option 2 is clearly nonsense---the total revenue from the sale of the input will be the same as the total cost of it to producers. Option 4 is also a nonsense statement since rent is not the difference between price and average per-unit cost.