The optimum output of the price-taking company rule: The profit of a price-taking business is maximized by generating the amount of output where the marginal cost equals the market price. We returned to the production function after determining the optimal quantity of output to calculate the optimal number of employees—which was just the number of workers required to generate the optimal quantity of output.

Marginal analysis is a more direct method of determining the number of workers required to optimize a company's profit. This alternate viewpoint is simply another way of looking at the same issue. However, it provides more information on the demand for elements rather than the supply of commodities.

The level of output at which the marginal revenue of the good it produces equals the marginal cost of producing that good is chosen by a profit-maximizing business. It turns out that if the output level is selected so that marginal revenue equals marginal cost, then the amount of labor necessary to create that output level will result in the marginal revenue product of labor equaling the wage rate.

• The term marginal revenue refers to the product curve of a factor that shows how the marginal revenue product of that factor depends on the quantity of the factor employed.

The factor demand is derived demand:

• if the price of the good that is produced with a factor changes, so will the marginal revenue received from the good and thus the marginal revenue product of the factor.

• That is, in the case of labor demand, if P changes, MR changes, and MRPL = MPL × MR will change at any given level of employment.

That is, each worker's marginal revenue product is lower than the previous worker's because each worker's marginal product is lower than the previous worker's.

The factor distribution of income revealed that employee remuneration accounted for about 69 percent of total revenue in the economy.

Because labor is such an essential resource, it is frequently cited as an example in factor market debates. On the other hand, land, and money are essential resources, and their markets have distinct features that are worth investigating.

The marginal revenue product curve, and hence the individual firm's demand curves for land and capital, slope downward owing to declining returns, just as they do for labor.

The supply curve for a factor of production will vary when the factor becomes more or less available, just as supply curves for products and services. A drought, for example, may reduce the supply of farmland, while a government strategy to encourage investment could increase the supply of money. When the quantity of land or capital decreases, the rate of return decrease

The marginal product and rental rate grow when the quantity of land or capital declines. If the number of available delivery vehicles dropped, the added benefit from the last truck utilized would be greater than before—it would fulfill more urgent delivery needs—and companies would be willing to pay more for it. Similarly, when the quantity of land or capital grows, the marginal product shrinks.

The additional revenue created by the final unit of that factor used in the whole market for that factor is the equilibrium marginal revenue product of that factor.

Panel (b) depicts the equilibrium in the capital market. RCapital is the equilibrium capital rental rate, and QCapital is the equilibrium quantity of capital utilized in production.

The proper allocation of economic rent from land is a point of contention. Land should be held by the government, according to socialists, so that its advantages may be shared widely. Critics say that markets incentivize resource allocation to the most profitable uses, whereas publicly held property may not be distributed with the same consideration for opportunity costs.

When land is in fixed supply, sections of the economic rent can be redistributed by a land tax, which results in no deadweight loss. Remember that many forms of taxes reduce the equilibrium quantity and eliminate certain mutually beneficial transactions, resulting in deadweight loss. A land tax does not reduce the quantity of land when the quantity of land is fixed.

• The term marginal productivity theory refers to the income distribution about payments to factors when goods markets and factor markets are perfectly competitive

The whole tax cost is borne by landowners in the form of a reduction in economic rent. Although a land tax makes sense in terms of efficiency, there is no agreement on the level of taxes that is fair to landowners.