Q.

An employer goes on employing more and more of a factor units until :

A. the Average Revenue Productivity becomes equal to Marginal Revenue Productivity.
B. the Marginal Revenue Productivity becomes zero.
C. the Diminishing Marginal Returns sets into operation.
D. the Marginal Revenue Productivity of a factor becomes equal to its reward.
Answer» D. the Marginal Revenue Productivity of a factor becomes equal to its reward.
Explanation: 'According to the Marginal Productivity Theory, the reward or the price of a factor unit depends upon its productivity or its contribution to the total product. While employing a factor, an employer compares the marginal revenue productivity (MRP) of the lost unit and the marginal cost of the factor. He will employ a factor up to the point where the reward (marginal cost of the factor) paid to the factor equals its MRP. If MRP is more than the marginal cost, the employer increases its profits by employing more units of the factor; on the other hand, if marginal cost of the factor is greater than MRP, it will reduce employment to reduce its loss.
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