Alfred Marshall has developed the quasi-rent concept. Quasi-rent is related to short-run earnings of the capital equipment. Capital equipment includes machinery, buildings etc. In the short- run machinery, buildings etc. cannot change its supply. They are inelastic in supply in the short-run.
Land is a factor of production whose supply is purely inelastic both in the short-period as well as in the long-period. So earnings of land depend on change in demand for land.
Similarly in the short period the supply of some capital equipment’s is purely inelastic. The earnings of such equipment’s depend on demand conditions.
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For such capital equipment’s cost of production is not important. Since the capital equipment is not fixed in supply in the long-run and in fact, elastic in the long-run, earnings of such capital equipment in the short-run is quasi-rent. It means, capital equipment in the short-run is totally fixed in supply and its earnings stand only in the short-run for a change in demand.
But-in the long-run, its supply is elastic and no such earnings to a change in demand stands and hence it is concluded that specialised capital machinery earns only in the short-run and its earnings vanish in the long-run.
These short-period earnings by the machinery is known as quasi-rent rather than rent as there are no such earnings by the machinery in the long-run.
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So quasi-rent is a temporary surplus which the owner of the capital equipment (or machinery) enjoys in the short-run due to the increase in demand for the capital equipment and it will vanish in the long-run due to increase in supply of the capital equipment in response to increased demand.
In the short-period capital equipment, has no alternative use. So its earnings fall to zero in the short- period.
So the whole earnings of the machinery (or capital equipment) in the short-run is surplus over transfer earnings (transfer earnings is equal to zero in the short-period as the machinery has no alternative use in the short-period) and it represents rent.
But maintenance cost is necessary to keep the machinery in the running condition. Quasi-rent is short-run earnings of a machine minus the short-run cost of keeping the machine in the running condition. So:
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Quasi-rent = Total Revenue earned – Total variable costs (costs involved to keep the machine in the running order). So quasi-rent is a short-run earning concept and it disappears in the long-run. Quasi-rent arises in case of specialised machines in the short-period.
So quasi-rent is defined as short-run earnings of a machine minus the short-run cost of keeping it in running order. Here short-run cost implies only variable cost. Stonier and Hague remark that the supply of machines is fixed in the short-period. So such machines earn in the short- period due to change in demand.
The machine is paid for its use in the short-run and the payment made for its use may be much or little depending on the urgency of its use. Here the cost of production concept does not arise.
Machines earn a kind of rent in the short-run only because of change in demand. In the long-run, the supply of machine will change to a change in demand and this rent disappears in the long-run.
In fact, it is not a true rent. It is an ephemeral reward termed as quasi-rent.
So Quasi-Rent = Total Revenue Earned – Total Variable Costs.
So whatever excess earnings over and above the total variable costs made are ascribed to the machines (fixed factor in the short-run) and this amount is quasi-rent. So quasi-rent is always positive and it cannot be negative in any situation.
However, the short-run earning of the factors of production other than land is called ‘Quasi- rent’. These rents are available in case of machines in the short-run but disappear in the long-run.