What is Quasi-rent?

Answer 1

The short-run excess earnings made by a firm: the difference between production cost (the cost of labor and materials) and selling cost Professor Alfred Marshall (1842-1924) gave the concept of Quasi-rent. He defined the classical concepts of Land, Labor & capital. In his parable of the meteoric stones, Marshal illustrated the principles that separately determine rent, quasi-rent & interest. It is the rent accruing to any factor of production other than land. It refers to the temporary return to the factor of production whose supply cannot be adjusted to demand in the short-run with the increase in the factor of production, the quasi rent disappears. For example at the time of creation of Pakistan, the demand for houses increased owning to increase in population. But the supply could not be increased because of the sacristy of building materials. For the time being , their supply was much limited as that of land. Rent rose. This abnormal increase in the return on capital invested in building is nothing but Quasi-rent. It is not pure rent as the supply of houses can be increased in the long -run. At that time the abnormal increase in rent will disappear.

Quasi-rent arises in the case durable goods like houses, machine and in case of a particular kind of skill. It arises due to a temporary scarcity of a particular durable goods or skill which can be increased only if enough time is give. Whereas economic rent is the surplus paid to the owner of the land for the use of the original and indestructible powers. In this Marshall describe that in case of short run; quasi rent is neither permanently fixed in quantity nor infinitely long in life. Rather in the long-run equilibrium price maintains a balance between the number of new Stones discovered and the old stones used up. The value of the new stones equals their cost of discovery. Marshall introduced the concept of quasi-rent to explain the distribution of income in the short run when old investments are fixed. Classical economists, such as Smith and Ricardo, discussed the long run, when both labor and capital are variable; and they discussed the market period, when the quantity of a commodity on the market is temporarily fixed; but they did not treat the special conditions where firms cannot acquire new capital goods, but can vary their output. These special conditions raise a number of questions. First, what is a fixed cost? Marshall considered two types of fixed costs. On the one hand, the firm may hire outside agents for a period of time on contract, either expressed or implied. Here, Marshall counted "the salaried staff," "Labor" and on the other hand, the firm may also employ its own resources, which the textbooks symbolize as K in the familiar production function, where Q = f (L, K). The firm's own resources earn a quasi-rent, which Marshall defined as "the charges for the use of appliances, whether material, such as its buildings or machinery, or immaterial such as its organization and trade connections. Both types of fixed costs arise from the services of fixed inputs. They are the fixed factors of production, to which Marshall attributed the "supplementary" or fixed costs of the firm in contrast to its "prime" or variable costs". Supplementary costs are fixed, whether the inputs are hired or owned by the firm. By: Shafaq Chohan