According to the neoclassical theory of distribution, if firms are competitive and subject to constant total income in the economy is distributed:
A)only to the labor used in production.
B)partly between labor and capital used in production, with the surplus going to the owners of the firm as profits.
C)equally between the labor and capital used in production.
D)between the labor and capital used in production, according to their marginal productivities.

Question

Quizplus · Accepted Answer

According to the neoclassical theory of distribution, income is distributed between labor and capital used in production, according to their marginal productivities. This means that the share of income received by labor is determined by the marginal productivity of labor, while the share of income received by capital is determined by the marginal productivity of capital. This distribution occurs in competitive markets with constant total income in the economy.

According to the Neoclassical Theory of Distribution, If Firms Are