Economics • Economic BasicsHard
What does the 'Euler's Theorem on Product Exhaustion' state in distribution theory?
A. Under constant returns to scale and perfect competition, total output is exactly exhausted when each factor of production is paid its marginal product.✓ Correct Answer
B. Marginal utility must be equalized across all consumed goods relative to their prices.
C. Total revenue is maximized when marginal revenue equals zero.
D. Long-run average cost curves are tangent to short-run average cost curves at their minimum points.
💡 Solution & Explanation
Euler's theorem states that under conditions of constant returns to scale and perfect competition, paying each factor of production its exact marginal product will completely exhaust the total output. Alternative economic theories deal with consumer equilibrium or cost curves rather than product exhaustion in linear homogeneous production functions. This theorem is a foundational concept in microeconomic distribution theory.
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