What are the rewards to factors of production?

In the production of goods and services, firms combine factors of production in various proportions. The baker, for instance, needs flour, baking powder, sugar, baking equipment, such as an oven and other ingredients for baking. If he operates on commercial scale, he will need to employ workers.
   Payments are made to secure these factors. We have classified factors of production into four main headings: namely, land, labour, capital and entrepreneurship. The rewards to factors of production are:
  • rents paid to owners for the use of their lands,wages paid to workers for the use of their services.
  • profits earned by entrepreneurs. In other words, rents, wages, interests and profits are rewards to the owners of production andinterests received by owners of capitals

Rents are classified into Commercial rent, economic rent, and
Commercial Rent
Commercial rent is defined as payment made for the use of  property, such as buildings and machinery. In other words, it is a reward for investment in property.

Economic Rent

This describe as any payment made to a factor of production over and above what is necessary to keep it operative or functional.  It is a surplus payment made to any factor of production – land, labour, capital or enterprise. The economic rent earned by a factor is the difference between its earnings and its opportunity cost.
That is to say, economic rent refers to the difference between the payment made to a factor of production and the minimum it would accept in its next paid employment.
    For example the minimum wage a medical officer will accept for his next employment is #300 but he is receiving #900 presently, his economic rent is #600 (that is #900-#300). If he were given #300, he would reject any sum less than #300. The extra #600 he makes represents his transfer earning or opportunity cost. It is what he will accept for his next employment if he were forced to.


Quasi-rent is payment made to any factor that is temporarily fixed in supply. It is a temporary surplus payment that is made to a factor, Such payment is expected to disappear when the supply condition of that factor improves.
    Quasi-rent disappears in the long run when adjustments are made to improve the supply and demand situation . The rents charged by landlords in Nigeria are often in the forms of quasi-rent and commercial rent.

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