Updated: Aug 20, 2021

An excess of total revenues over total avoidable cost which accrues to a seller of a good or service as a profit in the short-run, but which is transformed into a cost or otherwise eliminated in the long-run. Quasi-rents generally arise either because it takes time for new firms to enter and compete within a market where profits are being earned or because certain prices of factors of production may be fixed over the short-run which can be renegotiated in the long-run. As an example of the latter, suppose that a store is located on a particular site and its renta! is fixed on the basis of a ten-year lease. Halfway through the duration of the lease a new housing development is built near by, and the amount of business done, and the profits the shopkeeper makes, treble. When the time comes for renegotiation of the lease the owner of the site will raise the renta! to equal the present value of the future stream of profits from the shop, since this is the maximum amount the shopkeeper would pay before he would move elsewhere (note that the ‘salary’ or opportunity cost of a shopkeeper is included in costs and is therefore not a part of profit). The shopkeeper can either pay this new rental or leave, so the excess profits have now been turned into a genuine opportunity cost. What were profits in the short-run have become costs in the long-run, and such temporary profits, arising essentially because the system is not in long-run equilibrium, are known as quasi-rents.

Reference: The Penguin Dictionary of Economics, 3rd edt.

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James Knight
Editor of Education
James is the Editor of Education for Invezz, where he covers topics from across the financial world, from the stock market, to cryptocurrency, to macroeconomic markets.... read more.