QUASI RENT
The concept of Quasi rent was introduced in the economic theory by Marshall. It is an extension of the
Ricardian concept of rent to the short run earning of the capital equipments such as machinery, building etc
which are in inelastic supply in the short run. So cost of production is not important as the supply of machines
is perfectly inelastic in the short run. Only demand determines its earnings. So it is similar to land rent which
is also earned due to inelastic supply of land. Since the capital equipments are not permanently in fixed supply
like land and instead their supply is very much elastic in the long run, Marshall call their earning in the short
period as ‘Quasi Rent’ rather than rent.
The Quasi rent is only temporary surplus which is enjoyed by the owner of capital equipment in the
short run due to the increase in demand for it & this will disappear in the long run due to the increase in the
supply of capital equipment in response to the increased demand.
In the short run, specialized machinery has no alternative use & therefore its supply will remain fixed in
the short run even if its earnings fall to zero. Thus the transfer earning of the capital equipment in the short
run is zero. Therefore the whole earning of the machinery in the short run are surplus over transfer earning &
therefore represents rent. However, some maintenance costs are required to keep the machines in running
order. So,
Quasi rent = Short run earning of the machines – short run costs of keeping it in running order.
Production of a good is possible when a fixed factor is combined with some variable factors. The
amount of variable factors used depends upon the level of output produced while the quantity of the
fixed factor remains unchanged during the short period. The variable costs must be recovered, otherwise
the production will stop. Whatever excess earnings are made over and above the TVC are due to the
machines.
So, Quasi rent = Total revenue earned – Total variable costs.
If OP is the price, consumer is in equilibrium at Q. Here total revenue is OMQP & TVC is OMEF. So,
Quasi rent is FEQP.
If price falls to OPˊ, consumer is in equilibrium at R. Here total revenue is OMˊRPˊ & TVC is OMˊGH.
So, Quasi rent is HGRPˊ.
If price falls to OPˊˊ, consumer is in equilibrium at S. Here total revenue = TVC. So, no Quasi rent will
be earned.
Price can’t fall below OPˊˊ because entrepreneurs will close down production as TVC will not be
covered. So, Quasi rent can’t be negative.
