Capital is paid according to the value of its marginal product
A)only if earnings from capital are paid to households in the form of dividends.
B)only if earnings from capital are kept within firms as retained earnings.
C)regardless of whether earnings from capital are paid to households in the form of dividends or whether those earnings are kept within firms as retained earnings.
D)None of the above is correct; unlike labor, capital is a factor of production for which earnings are unrelated to the value of marginal product.

Question

Quizplus · Accepted Answer

According to the theory of marginal productivity, capital is paid according to the value of its marginal product regardless of whether earnings from capital are paid to households in the form of dividends or whether those earnings are kept within firms as retained earnings. This means that firms will allocate capital towards its most productive uses, which will ultimately increase its overall efficiency and the economy's output.

Capital Is Paid According to the Value of Its Marginal