Chapter 13R, Problem 21MCQ

To determine

The correct option that defines payment of factor of production as per the marginal productivity theory.

Answer to Problem 21MCQ

Option a is correct.

Explanation of Solution

Explanation for correct option:

a.

As per marginal productivity theory of income distribution, factor of production are paid as per the increase in the revenue obtained from the last unit of factor employed in the market. In other words, all factors of production are paid equivalent to the marginal revenue of the product. Therefore, option a is correct.

Explanation for incorrect options:

b.

Price of the factor is paid according to the revenue not as per the output generated. Therefore, option b is incorrect.

c.

As per marginal productivity theory of income distribution, the price is paid according to the additional revenue generated by the unit of factor instead of average revenue. Therefore, option c is incorrect.

d.

As per marginal productivity theory of income distribution, the price is paid according to the additional revenue generated by the unit of factor instead of average output. Therefore, option d is incorrect.

e.

As per marginal productivity theory, each factor of production is been paid according to the revenue generated by the last unit of factor added to the market. Therefore, option e is incorrect.

Economics Concept Introduction

Factor of production: Factor of production refers to the components or the resources that are required for producing intangible or tangible products.

Factor income: Factor income refers to returns received by the producer for inserting each factor of production as an input.