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

Question

Quizplus · Accepted Answer

In a competitive market, the price of each factor of production is equal to its marginal product. Therefore, in equilibrium, each factor of production earns the value of its marginal product, which is the extra output that is generated by the last unit of that factor. This is the most efficient outcome as it ensures that factors of production are allocated to their most productive use.

If Both Input and Output Markets Are Competitive, and Firms