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P. 20. The theory of distribution. The pricing of productive factors, p.279.

     Derived demand - demand for not the factor itself, but for what it can produce.

Marginal distribution theory.

     Marginal physical product (MPP)- the change to total output resulting from the employment of one more unit of a variable factor (cuts APP at highest)
     Productivity - output per factor, rises & falls with APP!
     Marginal revenue product (MRP) - change to a firm's revenues as a result of the sale of the product of one more unit of a variable factor = MPP x P.

Least cost combination= etc. (for long run).

Supply curve is upward sloping (firm has to pay more to attract more).


1.     Non - homogeneity (units of factor are not identical)

2.     Immobility

3.     Inheritance (there is wealth besides factors that can also produce income)

4.     Political - legal (value of factors is often predetermined)

5.     Historical (industry does not move easily from its historical location)


     Isoquants + join the combinations of factors that can produce the same quantity. The slope of isoquant shows the substitution ratios of the factors of production.

     Icocost - shows the all the combinations of factors that can be bought at the same money, the slope shows relative prices of factors.

Least combination occurs when they are tangential. Expansion path shows different tangent points.

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