Four factors of production, namely land, labor, capital and organization committed to a certain level of production. The fees are charged for their services.
Owner gets the income, the type of work for wages, the capitalist receives the interest and the organization of services. These are the rewards of the factors of production. The sum of these prices of production factors in an economy in a year is the national income. Profit distribution of the inputs than the national distribution of income or price factors are known.
The simple aim of a firm is the maximization of revenue. Symbolically,
= R - P
It shows that the utility of two components, namely, revenues and costs, of course, is determined to cost one of the main pillars of the theory of profit. Premium payments in the amount of inputs is cost. Therefore, determining rewards / price of production factors plays an essential role in business activities.
Let us now discuss the various theories for the optimum value of factors of production to be determined. We first discuss the theory of marginal productivity.
We consider the general theory of income distribution or the price factor in the sense that for all factors of production. The classical theory of prices of production factors are known.
MARGINAL PRODUCTIVITY THEORY
In general, the theory of marginal productivity with the name of JB Clark's place. In any case, Madera, Walras and Marshall are considered the main causes.
Import price and use of entry are considered essential for a company to compensate. Marginal productivity theory, the basic principles that would allow an undertaking to the optimal price and level of input use.
Nature of analysis:
Marginal productivity theory may be talked about nether 2 types:
(i) Partial analysis (ii) General analysis
Some the cases are grounded about the being Premises
1. Perfect competition.
It is perfect competition in the market for goods and factor markets.
All units are homogeneous in the capacity factor, efficiency, experience, etc.
Factors are mobile and can move from one place to another, from one job to another job for a better reward in the economy.
The factors are perfect substitutes for each other.
5. Law of diminishing returns.
Right to work, decrease, reduction of the marginal product of the successive application of more variable factor of production fixed factor of production.
The various units of the factors are separable.
7. Full employment.
There is full employment of factors and resources.
Marginal productivity of a single factor that can be measured.
9. Profit maximization.
The main objective of a company is to maximize profits.
10. Perfectly elastic.
Providing input is perfectly elastic, ie the required units of the variable (whatever) be on the current price.
11. The long-term analysis.
The theory is a long time and other factors can be fixed size factor.
12. General theory.
It applies to all production factors.
13. No changes in technology.
The technique remains the same.
14. No action.
State does not intervene in the pricing of output and inputs (such as the implementation of price controls, minimum wage legislation, etc.)