Question

Explain the following contingent function of money:

Employment of factor inputs

Answer 1

Every producer strives to achieve maximum profit by utilising different factors of production. To do so, a profit-orientated entrepreneur matches the value of a factor's marginal productivity with its cost, such as wages or other forms of payment. Since these payments are expressed in monetary terms, money plays a key role in guiding the producer’s decision about how many units of a particular factor should be employed.