According to Recardian Theory of Rent, land is not uniform is quality and as population rises more and more marginal land must come into use. The high cost of producing on the most marginal last will decide the price of grain. The better land yielding a high return must earn economic rent.
The law of variable proportions shows a particular pattern of changes in output and is an explanation of short run production function where some factors remain unchanged. In the history of economics till the time of Alfred Marshall, there were three laws of return, increasing, constant and diminishing laws of return. Much time was wasted in this issue. However, it was later on realized that there are three stages of production
The Modem Theory of pricing of factors of production also known as "Demand and Supply Theory" gives a satisfactory answer to the problem of determining factor prices. According to the theory just as the price of a commodity which is determined by the forces of demand & supply, similarly the price of a factor of production is also determined by the demand for that factor and its supply.
The Marginal Productivity Theory is based on the operation of the Law of Diminishing Returns. As we employ more and more of a factor in the production of a commodity, returns from its fall. We shall therefore employ a factor only so long as its productivity exceeds its remuneration.
According to this theory the entrepreneur or owner of a firm can measure the value of marginal productivity of factors of production, and thus he can try to equate it with the prevailing factor rate in the market. However it is sometimes difficult to know the value of marginal productivity of factors of production
Theory states that reward of each factor of production tends to be equal to its marginal productivity in other words "Distribution according to "Contribution". Marginal Productivity refers to the addition that the use of one extra unit of the factor makes to the total production.
"Internal economies are those economies in production which occur to the firm itself when it expands its output or enlarge its scale of production".
They are of two kinds of elements of Business Cycle Internal & External Elements. The internal or endogenous forces are the elements within business activity itself.