Identify and explain the concept : Shabana paid wages to workers in her factory and interest on her bank loan.

Answer: Factor payments (income method of national income)

Concept: Factor payments / factor incomes. Explanation: Payments made to factors of production for their services in production are factor payments: rent to land, wages to labour, interest to capital and profit to the entrepreneur. Wages paid to workers and interest paid on the bank loan are factor payments made by Shabana. Under the income method, national income is measured as the total of such factor incomes (rent + wages + interest + profit). From Shabana’s side as a producer, these payments are part of her cost of production: wages are a variable cost and interest on the loan is a fixed cost, and together they form part of her total cost (TC = TFC + TVC).