If both input and output markets are competitive and firms are profit maximizing, then in equilibrium each factor of production earns

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Quizplus · Accepted Answer

In a competitive market, each factor of production will earn the value of its marginal product (VMP) as firms will hire each factor until the VMP equals the factor's cost. This is the efficient allocation of resources and ensures that each factor is paid its marginal contribution to production.

If Both Input and Output Markets Are Competitive and Firms