The theory of factor pricing is also called the theory of distribution. Distribution is one of the important divisions of economics.

In modern world, Human wants are unlimited. So, large scale production is necessary. The large scale production in turn, necessitates large amount of factors of production like land, labour, capital and organization. These factors are supplied by various persons. As for example, the land is supplied by landlords, labour by labourers, and capital by capitalists and management by entrepreneurs. Since production is the result of joint effort of all the factors of production, it should be distributed among them. Hence, in theory of factors pricing, we study how the rent, interest, 'wages and     profit are determined.