Managerial Economics

Chapter 14

Theories of Distribution

After studying this chapter, you should be able to understand:

• The theory of distribution deals with the determination of the price of the different factors of production.
• The marginal productivity theory was formulated by J. B. Clark to explain the determination of the price of the factors of production.
• According to the marginal productivity theory, the price of a factor like labour is determined by the marginal productivity of labour.
• The VMP_L = MRP_L is the firm’s demand curve for labour when labour is the single variable factor.
• Under perfect competition, the wage rate equals the value of the marginal product.
• David Ricardo believed that rent was a payment by the tenant to the landlord for using the soil, ...