The use of constant-price value data and an underlying accounting identity mean that the close correspondence often found between the “output elasticities” of a putative aggregate production function and the relevant factor shares is a mere statistical artefact. Marginal Productivity refers to the addition that the use of one extra unit of the factor makes to the total production. In economics, distribution is the way total output, income, or wealth is distributed among individuals or among the factors of production (such as labour, land, and capital). But marginal productivity of a factor is the most important economic factor gov­erning the prices of factors. In spite of these shortcomings, the marginal productivity theory of distribution offers an apparatus which can usually explain the rewards of the various factors of production. The price of a factor is determined by and will be equal to marginal revenue product of that factor. MODERN THEORY OF DISTRIBUTION The marginal productivity theory, which we have discussed above only tells us how many workers will an employer engage at a given wage-level in order to maximize his profit.It does not tell us how that wage-level is determined. Greater the productivity of an element, higher will be its rate. Demand by a firm for a factor of production is the marginal productivity schedule of the factor. Explain the marginal productivity theory of income distribution. When there is a firm with a monopsony in the labor market, which of the following occurs? 3. For example a laborer gets his wage according its marginal product. Abstract. Marginal Productivity Theory . The marginal productivity of factor affects its reward, but the reward of a factor may also affect its marginal productivity, both are inter-connected manually. b. A theory which tries to answer this question and which has been fairly widely held by professional econo­mists is known as marginal productivity theory of distribution. Marginal productivity or marginal product refers to the extra output, return, or profit yielded per unit by advantages from production inputs.Inputs can include things like labor and raw materials. In economics, the marginal productivity theory of income distribution refers to the idea that every factor of production that is sold in a factor market is paid its equilibrium value of the marginal product, or the additional value generated by employing the last unit of that factor in the factor market as a whole. In the 1890s, however, the Neoclassicals finally put forth their own theory -- the "Marginal Productivity" theory of distribution -- that was at the same a generalization and repudiation of the the Classical Ricardian story. So, if hiring a first barman generates £100 a week extra profit for a pub landlord that barman will be paid up to £100. Email:anil.nath69@gmail.com The Marginal Productivity theory is an attempt by economists to evolve a general theory which John Bates Clark, (born January 26, 1847, Providence, Rhode Island, U.S.—died March 21, 1938, New York, New York), American economist noted for his theory of marginal productivity, in which he sought to account for the distribution of income from the national output among the owners of the factors of production (labour and capital, including land). He is rewarded on the basis of … The history of the Marginal Productivity Theory of Distribution (MPTD) is characterized by vigorous debate. How the product is distributed depends upon the rewards the various factors of production receive. The marginal productivity theory of distribution explains how the national income distributed amongst various factors of production, it also explains how the price or the share of each factor of production is determined. According to Mark Blaug “The marginal productivity theory states that in equilibrium every productive factor will i) Marginal Productivity Theory of Distribution According to this theory, the price of a factor of production depends upon its marginal productivity. However, the Classical theory of distribution lingered on for a little while. The marginal productivity theory of distribution figures out the rates of elements of production. This answer has been viewed 132 times yesterday and 508 times during the last 30 days. of Economics, B.S.College; Danapur,Patna-12. The Marginal Productivity Theory of Distribution [For B.A.Part-1 (Economics Hons). MARGINAL PRODUCTIVITY THEORY OF DISTRIBUTION: 1. 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