According to Euler's theorem, if competitive firms pay each factor its marginal product and the production function has constant returns to scale, the sum of all factor payments will equal:
A) total investment.
B) total saving.
C) total profits.
D) total output.

Question

Quizplus · Accepted Answer

According to Euler's theorem, the sum of all factor payments will equal total output. This follows from the fact that in a competitive market, all factors are paid their marginal product, which represents their contribution to the firm's output. With constant returns to scale, increasing the use of all factors in equal proportion will result in a proportional increase in output, meaning that the sum of all factor payments will equal total output.

According to Euler's Theorem, If Competitive Firms Pay Each Factor