Question

Determining the payments to capital and land by using suitable example

Answer 1

The payments are made to the factors of productions- land , labor, capital and enterprise. The rent is paid for the services given by the land, wages are being paid for the labor services, interest is given for the services of capital, and profits are paid for the services provided by the entrepreneurship.

Among all the natural resources land is short for all to create supply. It consists of the raw property and anything which comes from the ground. The prices for factor of production would be determined on the basis of the demand and supply of that particular factor of production. For example: the rent will be paid on the basis of the marginal revenue productivity and will be subject to the diminishing marginal returns. In similar way the company will hire only the optimal amount of workers who will maximize profit, and optimal quantity of labor depends upon the marginal product of labour. For example, at a hotel site the construction worker will be the part of labor while the the waiter who would be serving the guests or the receptionist that enrolls them into the hotel will be labour who are paid the wages for their services