Theory of Profit
Profit is the another important factor in factor payments. This theory was first developed by Edgeworth, Chapman, Stigler,Stonier. This theory is also depended upon the marginal revenue productivity. It is also called Marginal Product' and Capital demand.Let us consider example, The main objective of firm is to maximize profit. As we know that profit would be difference between the revenue and costs.Where the revenue would be equal to the price of the good multiplied by the output of the firm. On the other hand the costs of the firm include labor costs, capital costs,rent cost if any.Now if we substitute our production function. Then we would see that the profit of the firm is depended on factor prices and factor inputs. .Hence firm would choose the that optimal level of factor inputs that would maximize profit of the firm.
Read more about this topic: Factor Payments (economics)
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