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factor prices


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The prices of the services of factors of production. For labour of various types the factor price is the appropriate wage rate; for land, the rent paid; and for capital, the interest rate. The purchase prices of land and capital goods are not factor prices in this sense. In competitive equilibrium, factor prices would be equal to the marginal revenue product of each factor. If goods or factor markets are not competitive, or the prices of some factors are fixed for some time in advance by contracts, the relation between factor prices and marginal products is less clear-cut.

Subjects: Economics.


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