The relevance or applicability of the marginal productivity theory of distribution
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To large extent, the theory is inapplicable because: All units of a factor input are not homogenous. The assumption that all units of a service are homogeneous is unrealistic. Fertility of land, for example, differ from one piece of land to another. Likewise, efficiency of labour differs worker to worker. It is therefore, not correct to assume that the different factor units of the same service are homogeneous. Factors are not perfectly mobile. The theory assumes perfect mobility of factors as between different employments and places. In reality, factors are mainly immobile. There is no automatic movement of factor units from one industry or place to another. Perfect competition does not exist in true market situation. Perfect competition does not exist in the factor and product markets. What is in existence is imperfect competition. This leads to exploitation of factors by being paid much lower than their marginal productivity. Factors of production are not fully employed. The t...