The marginal productivity theory of income distribution assumes that factor markets are:
A)monopolies.
B)oligopolies.
C)perfectly competitive.
D)allowed to pay only the wages that government approves.

Question

Quizplus · Accepted Answer

The marginal productivity theory of income distribution assumes that factor markets are perfectly competitive. In such markets, the price of a factor of production (e.g., wages) is equal to its marginal product, i.e., the additional output generated by an additional unit of that factor. In other words, firms hire factors of production up to the point where the value of their marginal product equals their cost, and the resulting distribution of income reflects the relative scarcity and productivity of each factor.

The Marginal Productivity Theory of Income Distribution Assumes That Factor