Critics of the marginal productivity theory of income distribution claim that the theory is flawed because of
A) the law of diminishing returns.
B) the existence of imperfect competition, such as of monopoly and monopsony, in output and resource markets.
C) the problem of comparing different kinds of resources, such as capital and labor.
D) government policies that redistribute income.

Question

Quizplus · Accepted Answer

Critics argue that imperfect competition in markets for output and resources can affect the determination of wages and other factor payments, making the marginal productivity theory inadequate in explaining income distribution. Monopolies can exploit their power in the market and pay lower wages than the value of the marginal product of labor, while monopsonies can pay below the marginal revenue product of resources such as land or capital. These deviations from perfect competition mean that marginal productivity does not necessarily determine the distribution of income.

Critics of the Marginal Productivity Theory of Income Distribution Claim