There are different grades of land according to fertility. Land A is the most fertile land, Land B is the least fertile and C is the least fertile land. Land A is cultivated and produced 200 Kg of wheat at the cost of production of RS 2000. The market price of wheat is RS 10/Kg. the total revenue is 2000 after selling this output 10* 2000. It is just covering cost of production, so there will be no rent on this land. Land a will be called no rent land.
Now the population increases and land B is cultivated on need with same factors of production and cost of production on RS 2000. Land B produces 150 Kg of wheat. The price of wheat rises to 33.3/Kg. after selling this, 150kg of wheat at 13.33/kKg land. So, land B earns 2000 just covering its cost. Thus land B will be called no rent land but land A produces surplus of 50 Kg after covering its cost of 2000 at market price of RS 13.33/Kg. the surplus production on value of this land will be the rent on land A.
Now population increases again and land C is cultivated on need with same factors of production and cost of production RS 2000. Land C produces 100G OF WHEAT. PRICE OF WHEAT RISES TO 20/g. after selling 100 KG of wheat at the price of 20/Kg, land C earn RS 2000 just covering its cost. So there will be no rent on land C. now land C will be called no rent land but land B now produces surplus of 50 Kg after covering its cost of 2000 at market price of RS 20/Kg. this surplus production will be rent on land B and land A produces 100 as surplus thus rent on land increases equal to its surplus production, this is the Ricardian theory of rent.
Now the population increases and land B is cultivated on need with same factors of production and cost of production on RS 2000. Land B produces 150 Kg of wheat. The price of wheat rises to 33.3/Kg. after selling this, 150kg of wheat at 13.33/kKg land. So, land B earns 2000 just covering its cost. Thus land B will be called no rent land but land A produces surplus of 50 Kg after covering its cost of 2000 at market price of RS 13.33/Kg. the surplus production on value of this land will be the rent on land A.
Now population increases again and land C is cultivated on need with same factors of production and cost of production RS 2000. Land C produces 100G OF WHEAT. PRICE OF WHEAT RISES TO 20/g. after selling 100 KG of wheat at the price of 20/Kg, land C earn RS 2000 just covering its cost. So there will be no rent on land C. now land C will be called no rent land but land B now produces surplus of 50 Kg after covering its cost of 2000 at market price of RS 20/Kg. this surplus production will be rent on land B and land A produces 100 as surplus thus rent on land increases equal to its surplus production, this is the Ricardian theory of rent.