An important assumption underlying the marginal productivity theory of income distribution is that:
A)product markets are monopolistically competitive.
B)factor markets are perfectly competitive.
C)the relevant value of the marginal product is not the equilibrium value.
D)the firm does not own any land or physical capital.

Question

Quizplus · Accepted Answer

The marginal productivity theory assumes that factor markets, where labor and other factors of production are bought and sold, are perfectly competitive. Perfect competition means that firms are price-takers and must pay the prevailing market wage rate for each unit of labor they hire. In this scenario, workers are paid according to their marginal productivity, the additional value they add to the firm's output.

An Important Assumption Underlying the Marginal Productivity Theory of Income