Question

When each factor is paid a payment equal to the marginal revenue product of the last unit of that factor employed in the factor market as a whole, this is referred to as:__________.

Answer 1

Answer:

the marginal productivity theory.

Explanation:

In a perfectly competitive market, each factor of production is paid a payment equal to its marginal productivity. The price of the factors is not determined by the company, instead it is determined by the industry as a whole.

For example, if an extra unit of labor is able to produce $15 worth of output, then the payment for the unit of labor should be $15.