Diagrammatic Illustration of the Pericardia Theory of Rent
The following diagram illustrates the Pericardia theory of rent. These four figures show how much rent each ‘grade of land yields. indicates A-grade land which is the most superior land. shows the By grade land which is next best. shows the C-grade land W shows D-grade land which is the least productive land or which is most inferior. In all these figures. the curve C is the average cost curve and MC is the marginal cost curve.
‘The D-grade land will be cultivated only when the price of agricultural output is equal to the average cost of production. It will be seen that the minimum a cage cost of production on D-grade land is LH. If . D-grade land is to be cultivated then the price of the produce (wheat) must be equal to OP. In other words. below the demand for wheat increases so much that price OP is determined, only then will this land be .VIled. Now, suppose that the demand for wheat predeceased so much that OP price is determined. In this quantity of D-grade land. will be cultivated. In the figure (iv). the total cost of production is equal 10 the total value of the produce obtained (because price OP = Average cost of production LH). in this case of D-grade land, there is no surplus boa e the cost of production. In other words, there rill be no rent on D-grade land. This is the no-rent land or marginal land. ow take C-grade land in this case also, rice is OP (because under perfect competition price in the market must be the same whatever land may be prod ing that commodity), but the average cost is QS. Hence, there is GS per unit surplus or total surplus above total cost, is shaded area GPTS. This is the rent on the C-grade land. Similarly, the rent on B class land i represented by the shaded area FPZK and on A-grade land it is EP