Factor Pricing OR Theory of Distribution:
The theory of
distribution or the theory of factor pricing deals with the
determination of the share prices of four factors of production,
viz., land, labor, capital and organization.
productively theory is an attempt to explain the
determination of the rewards of various
factors of production in a competitive market.
In a perfectly
competitive market, an individual firm cannot influence the
market price of a factor by increasing or decreasing its demand.
So it has to hire units of a factor at its prevailing price in
The modern economist
discard the marginal productivity theory on the ground that it
completely ignores the supply side of a
factor of production.