Chapter 70, Problem 5MCQ

To determine

The correct option according to the marginal productivity theory of income distribution.

Answer to Problem 5MCQ

From the available options, the correct option is each factor is paid the equilibrium marginal revenue product.

Explanation of Solution

By using more and more factors, marginal productivity would start to decline, which means option b is not correct.

But the theory of income distribution indicates that the amount which is paid to every factor involved in the production process is equal to the value of each additional unit of output that the factor produces. Therefore, options a, c, and d are incorrect and the correct option is e (each factor is paid the equilibrium marginal revenue product).

Economics Concept Introduction

Introduction: Marginal revenue is the earning or benefit which is obtained by using an additional unit of the product or factor of production.

According to the marginal productivity theory of income distribution, every individual gets the proportion of income or revenue according to his/her contribution to the total output or productivity.