This paper uses the notion of Ricardian rents to resolve the confusion that students might encounter when they study the relationship between producer surplus and industry supply curve. My aim is to let students understand the reason why producer surplus is positive as the textbook asserts

By using a three-stage game, this paper shows that an investment in the banking sector may commit a duopolistic firm to a more aggressive output stance. This aggressiveness is translated by an outward shift in the firm's reaction function, thus increasing its own output and decreasing its...