Page-10 section-2 C. All factors, except one, are variable. Economics MCQ Questions and answers with easy and logical explanations. It is the work of many writers each improving, amending and modifying the ideas of the others. According to the neoclassical theory of distribution, the real wage equals the marginal product of labor. 5 shows that at point ‘E’ marginal wages of labour are equal to marginal revenue productivity and the firm employs OM number of workers. MRP is the marginal revenue productivity curve and AW is the average revenue productivity curve. Perfect competition in the factor market. 6. According to his theory, innovation can be leveraged in: Launch of a new product or an upgraded version of an existing product. It is also known as Micro Theory of Factor Pricing. Monopolist is always able to earn super normal profit. However, the determination of factor price under monopsony can be explained with the help of Fig. The point where demand for and supply of a factor are equal will determine the factor price for the industry. Statement of the theory: According to […] Marginal Productivity Theory (Neo-Classical Version): The marginal productively theory is an attempt to explain the determination of the rewards of various factors of production in a competitive market. their units can either be increased or decreased. As the theory assumes that there exists full employment in the economy, therefore, supply of the factor is assumed to be constant. Here, it is Rs. 4 number of labourers has been measured on OX-axis and wage rate on Y-axis. Bibliography: Bronfenbrenner, Mar 1971. 5. At OP wages, the demand for labour will increase to ON. Perfectly competitive factor markets maximize profit by hiring labor up to the point at which its value of the MP P ; What does this say about the labors share in the Commerce provides you all type of quantitative and competitive aptitude mcq questions with easy and logical explanations. lower his price to half. Now marginal productivity theory of distribution requires that . Industry refers to a number of markets grouped together. The marginal revenue productivity theory of wages is a model of wage levels in which they set to match to the marginal revenue product of labor, MRP (the value of the marginal product of labor), which is the increment to revenues caused by the increment to output produced by the last laborer employed. With a view to increase his production, Hariharan a manufacturer of shoes, increases all the factors of production in his unit by 100%. The theory assumes that both labour and capital are perfectly mobile between industries and localities. Both producers and owners of factors of production have means of knowing the value of factor’s marginal product. He is rewarded on the basis of contribution he makes the total output. This is also the Marginal Revenue Productivity curve. Thus firm earns only normal profit. In such a case, marginal revenue is equal to the average revenue of the product. Technology defines the production function. Marginal Costing - MCQs with answer. 3. Perfect Competition: How well does the marginal productivity theory of income distribution explain the actual income distribution in the United States or other nations? The real rental price equals the marginal product of capital. b. Multiple choice questions Try the multiple choice questions below to test your knowledge of this chapter. According to this theory, remuneration of cache factor of production tends to be equal to its marginal productivity. contributed for the development of this theory. The marginal productivity theory states that under perfect competition, price of each factor of production will be equal to its marginal productivity. Hence, the real wage falls. Under perfect competition, number of firms is very large. Economics MCQ Questions and answers with easy and logical explanations. The graph is similar to that above, but marginal revenue product will be the demand curve, instead of marginal physical product. Income Distribution Theory. By continuing, I agree that I am at least 13 years old and have read and agree to the. C. All factors, except one, are variable. Distribution and value theory rests on three points: 1. Other things remaining the same, as more and more labourers are employed by a firm, its marginal physical productivity goes or- diminishing. Explain marginal product theory of distribution in perfect and imperfect market. 4. At this point, even the average net revenue productivity is equal to average wages. Find 8 answers to The Marginal Productivity Theory Of Income Distribution Has Been Criticized Because question now and for free without signing up. 55. But in real life we face imperfect competition. The marginal productivity theory of resource demand was the work of many writers, it was widely discussed by many economists like J.B. Clark, Walras, Barone, Ricardo, Marshall. … Suppose the supply for product A is perfectly elastic. It must be true that: Increasing returns to scale can be explained in terms of: External economics and internal dis economies, An isoquant is a firm’s counterpart of the consumer’s indifference curve. Statement of the theory: According to […] So, factor price is determined by its demand which itself is determined by the marginal productivity. Marginal product is the result of total output of 2nd - total output of 1st. Share Your PDF File Consumer Equilibrium Utility Analysis MCQs. In particular, a firm is generally willing to pay a higher price for an input that is more productive and contributes more to output. there are constant returns to scale factor price will be equal to the marginal revenue productivity. Thus factor price is determined by the demand for factor i.e. The firm will earn maximum profits if it employs up to the fourth labourer. 2 shows that at wage rate OP1, the demand for labour is ON1 and marginal revenue productivity curve is MRP1. In Fig. … He is rewarded on the basis of contribution he makes the total output. Technology defines the production function. David Record was the first to use the theory for the determination of “Rent of Land”. Explain any two: (i) Price discrimination policy (ii) Liquidity preference theory (iii) Uncertainty bearing theory of profit (profit theory of prof. Knight) So too is the marginal productivity theory as a theory of the demand for labor and employment of labor; it is, however, neither a theory of wages nor the Protestant ethic in economic garment. But later on many economists like Karl Mcnger, Walras, Wickstcad, Edgeworth and Clark etc. advertise the superiority of his product. simply offer double the quantity for sale. Content Guidelines 2. When output goes up from four to five shirts the marginal cost is: _________ shows the overall output generated at a given level of input : At the point of inflexion, the marginal product is: At point of inflexion marginal product is maximum and here after it starts decreasing. It is due to this reason that it is also called Theory of Factor Demand. marginal productivity theory of distribution is true in reality, it has no moral implication of fairness. It is assumed that the quantity of factors of production can be varied i.e. The marginal revenue productivity of fourth labourer is Rs. Theory of contribution is the excess of sales over variable costs. Multiple choice questions Try the multiple choice questions below to test your knowledge of this chapter. Share Your Word File MRP is marginal revenue productivity curve and WW is the wage rate prevailing in the market. According to Liquidity preference theory of interest, there is negative relation between Therefore, an isoquant represents a constant quantity of output. In other words, a firm will employ that number of a factor at which its price is equal to the value of marginal productivity. If the firm demands more factors, factor price will go up and vice-versa. 5 per unit. The demand for factors of production are … If the price is exactly at the zero-profit point, then the firm is making zero profits. Therefore, from the point of view of a firm, the theory indicates how many units of a factor it should demand. If the firm employs fifth labourer, it will have to suffer losses of Rs. Welcome to EconomicsDiscussion.net! One of the following is NOT a assumption of the marginal productivity theory: A. The price of the factor is determined by the industry. If the demand for this product increases: ... distribution costs; D. direct production costs, indirect production costs, interest payments. 26 Multiple Choice Questions (MCQs) with Answers on Consumer Behaviour. Now marginal productivity theory of distribution requires that . 5. Hence, an active production is not a charterstic of land. Monopsony firm will have EF profit per labourer which arises due to exploitation of labourers. 4. If LAC curve falls as output expands, this is due to ______: This mock test of Test: Theory Of Production- 1 for CA Foundation helps you for every CA Foundation entrance exam. Perfectly competitive factor markets maximize profit by hiring labor up to the point at which its value of the MP P ; What does this say about the labors share in the Fig. The law of variable proportions which states marginal physical product of a variable factor eventually diminishes, even if it increases in the beginning. 2. MRP curve is sloping down-ward. This is because different units of a factor of production are homogeneous, since they are of the same efficiency, they can be employed inter-changeable, and e.g., whether we employ the fourth man or the fifth man, his productivity shall be the same. There is perfect competition both in the factor market as well as in the product market. Fewer workers will be … The theory is also based upon the assumption of perfect substitution not only between the different units of the same factor but also between the different units of various factors of production. No employer would like to pay more than what others are paying. Find 8 answers to The Marginal Productivity Theory Of Income Distribution Has Been Criticized Because question now and for free without signing up. the firm is price-taker. It is assumed that the various factors prod… Marginal Productivity Theory (Neo-Classical Version): The marginal productively theory is an attempt to explain the determination of the rewards of various factors of production in a competitive market. The solved questions answers in this Test: Theory Of Production- 1 quiz give you a good mix of easy questions and tough questions. Answer: Option C In this way, ON labourers will get less wages than their MRP i.e. You can find other Test: Theory Of Production- 1 extra questions, So long as the marginal cost of a factor is less than the marginal productivity, the entrepreneur will go on employing more and more units of the factors. Commerce provides you all type of quantitative and competitive aptitude mcq questions with easy and logical explanations. The concept of returns to scale is related with _________. It may, however, be pointed out that in recent years its popularity has somewhat declined due to bitter criticisms levelled against it. Law of diminishing returns is applicable in : An Isoquant is ________ to an iso cost line at equilibrium point: Least Cost Factor Combination or Producer's Equilibrium or Optimal Combination of Inputs.The point of tangency between the isocost and an isoquant is an important but not a necessary condition for producer's equilibrium. It is assumed that various factors of production are fully employed with the exception of those who seek a wage above the value of their marginal product. The Marginal Productivity Theory is based on certain assumptions which are as follows: 1. 2. This theory states that a factor of production is paid price equal to its marginal product. An isoquant is a curve that shows all the combinations of inputs that yield the same level of output. 3 Theoretical Contributions. 10. a. Page-9 section-2 Before publishing your Articles on this site, please read the following pages: 1. External economies can be achieved through: Extension of transport and credit facilities. Investment Samuelson-442 Dewett-365 TRUE OR FALSE 1. 5. The isoquant curve is also known as an “Equal Product Curve” or “Production Indifference Curve” or Iso-Product Curve.”. DD1 is the industry’s demand curve for labour. 6 firm is in equilibrium at point E. Here, firm will employ ON labourers and they will be paid wages equal to NF. It cuts WW at point E which is the equilibrium wage rate of Rs. It implies that all units of a factor are equally efficient and interchangeable. At point E, firm will demand only four labourers. This means that total output will be increasing at a decreasing rate. MCQs Economics of Growth and Development- Semester 3. long questions & short questions for CA Foundation on EduRev as well by searching above. The law of diminishing returns implies that marginal cost will rise as output increases. Introduction (Part - 1) - Nature & Scope of Business Economics, Test: Ratio And Proportion, Indices, Logarithms - 3. But here we shall analyze only Monopsony. In the fig. There is imperfect competition in factor market. Clark, John B 1899. Because of diminishing returns to labor, an increase in the labor force causes the marginal product of labor to fall. Question 1. All factors of production are assumed to be perfectly mobile. According to the neoclassical theory of distribution, the real wage equals the marginal product of labor. A firm will employ that number of labourers at which their marginal revenue productivity is equal to the prevailing wage rate. Clark, John B 1899. The demand for factors of production are … David Record was the first to use the theory for the determination of “Rent of Land”. Income Distribution Theory. The Indifference curve approach was introduced by a) Alfred Marshall b) Lionel Robbins c) J.R. Hicks and R.G.D. Given production is 1,00,000 units, fixed costs is Rs 2,00,000 Selling price is Rs 10 per unit and variable cost is Rs 6 per unit. B) Unimportant. 3, number of labour has been taken on OX axis whereas wages and MRP have been taken on OY axis. Marginal revenue is the latest addition made to the a) average revenue b) … The retail price (RP) of a product is calculated as follows: There is perfect competition both in the factor market as well as in the product market. Marginal productivity or marginal product refers to the extra output, return, or profit yielded per unit by advantages from production inputs.Inputs can … Since the number of firms is not constant under perfectly competitive market, it is not possible to estimate the summation of demand curves of all firms. Marginal productivity theory of distribution seeks to explain determination of a factor’s remuneration only in the long period. In the Fig. This theory assumes that units of a factor of production are homogeneous. So, the marginal productivity theory of distribution states that in the perfect competition, the price of each factor will be equal to its marginal productivity. On the side of supply, the price of a particular commodity is determined by its marginal cost of production. Chicago: Aldine. It was propounded by the German economist T.H. Title: Marginal Productivity Theory of Income Distribution 1 Marginal Productivity Theory of Income Distribution 2 Marginal Productivity Theory of Income Distribution. “The distribution of income of society is controlled by a natural law, if it worked without friction, would give to every agent of production the amount of wealth which that agent creates.” -J.B. Clark, “The marginal productivity theory contends that in equilibrium each productive agent will be rewarded in accordance with its marginal productivity.” -Mark Blaug, “The marginal productivity theory of income distribution states that in the long run under perfect competition, factors of production would tend to receive a real rate of return which was exactly equal to their marginal productivity.” -Liebhafasky. This is because it cannot take into account unequal bargaining power between the buyers and the sellers. It is the work of many writers each improving, amending and modifying the ideas of the others. w =VMP L =P.MPP L …(2) r = VMP K = P. MPP K …(3) Where w and r are prices of labour and capital respectively and MPP L and MPP K are marginal physical products of labour and capital respectively and P is the price of the product. D. Given stock of each factor and full employment. a) A and B b) B and C c) A and D d) B and D View Answer / Hide Answer. The Marginal Productivity Theory is based on certain assumptions which are as follows: 1. But in actual practice we see that all the units are not identical in efficiency. Allen d) Adam Smith ANS (c ) 2. It is because keeping other factors constant when we increase the variable factor.Then, according to the law of diminishing returns its marginal product … Thus, the productivity of all workers offering the particular type of labour is the same. By multiplying the MPP with price of the product we get marginal revenue productivity. Moreover, marginal revenue productivity of a factor constitutes its demand curve. Eventually, rising marginal cost will lead to a rise in average total cost. DISTRIBUTION The theory of distribution or the theory of factor pricing deals with the determination of factor prices, such as wages, rents, interest and profit. The oldest and most significant theory of factor pricing is the marginal productivity theory. The marginal productivity theory of income distribution suggests that income is determined by the marginal productivity of the factors of production that individuals own. Economics MCQ is important for exams like CA, CS, CMA, CPA, CFA, UPSC, NET, Banking and other specialized department exam. A) Additional. Marginal-productivity theory indicates that the demand for a factor of production is based on the marginal product of the factor. Hence, the real wage falls. CA Foundation d. physical quality of life index. 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