The marginal productivity theory of income distribution is based on the assumption that factor markets are perfectly competitive.

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The marginal productivity theory of income distribution assumes that factor markets are perfectly competitive, which means that there are many buyers and sellers, and no one can influence the market price. This assumption is necessary for the theory to hold, as it relies on the idea that each factor of production (such as labor or capital) is paid according to its marginal productivity, or the additional output that it contributes to the production process. In a perfectly competitive market, each factor is paid its marginal product, which leads to an efficient allocation of resources and a fair distribution of income.

The Marginal Productivity Theory of Income Distribution Is Based on the Assumption