Skip to main content

Factors of Production

The factors of production are resource inputs used to produce goods and services.
It is an economic term describing the general inputs that are used in the production of goods or services in order to make economic profit.
Every business utilizes various combinations of factors of production to produce final goods or services.
Under the classical view of economics, there are four basic factors of production, which includes Land, Labour, Capital, and Entrepreneurship.
Land is the physical space on which the production takes place, as well as natural resources or the raw materials that come from the land, like Crude Oil, Water, Air, Minerals, Ores, Coal, Timber etc. 
Labour is the time human beings spend producing those goods and services, as well as the skills and abilities they use to produce the goods and services. Both the quantity and the quality of human resources and all things done either physically or intellectually to keep a business running by the human beings is included in the "Labour" factor.
Capital refers to the long lasting tools that people use to produce the goods and services. Physical Capital includes the Factory or Office Buildings, Fleet of trucks, Machinery, Equipment or Tools or Computers etc. Intellectual Capital is the technological expertise that a business acquires overtime, its trade secrets and unique business processes. Human Capital includes the skills and the training the workers possess. 
Entrepreneurship is the assembling of resources to produce new and improved products and technologies. It is the factor of production that ties the other three factors Land, Labour and Capital together. The Entrepreneur provides innovation and creativity in the use of other factors, which helps create a profitable business.
For simplicity and analytic purposes, economists and analysts usually focus attention on two main factors, Capital & Labour. The relationship of both these factors and a company's output is referred to as the Production Function 

Popular posts from this blog

The Intuitive Lowest Cost Method

The Intuitive Lowest Cost Method Or The Minimum Cell Cost Method

The Intuitive Lowest Cost Method is a cost based approach to finding an initial solution to a transportation problem.
It makes allocations starting with the lowest shipping costs and moving in ascending order to satisfy the demands and supplies of all sources and destinations.

This straightforward approach uses the following steps.
Identify the cell with the lowest cost.Allocate as many units as possible to that cell without exceeding the supply or demand.Then cross out the row or column or both that is exhausted by the above assignment.Move on to the next lowest cost cell and allocate the remaining units.Repeat the above steps as long as all the demands and supplies are not satisfied. 
When we use the Intuitive Approach to the Bengal Plumbing problem, we obtain the solution as below.

Transportation Matrix for Bengal Plumbing From \ To Warehouse E Warehouse F Warehouse G Factory Capacity Plant A Rs.50
Rs.40 100 Rs.30 100 Plant…

Vogel's Approximation Method (VAM)

The Vogel's Approximation Method

In addition to the North West Corner and Intuitive Lowest Cost Methods for setting an initial solution to transportation problems, we can use another important technique - Vogel's Approximation Method (VAM).
Though VAM is not quite as simple as Northwest Corner approach, but it facilitates a very good initial solution, one that is often the optimal solution.
Vogel's Approximation Method tackles the problem of finding a good initial solution by taking into account the costs associated with each alternative route, which is something that Northwest Corner Rule did not do.

To apply VAM, we must first compute for each row and column the penalty faced if the second best route is selected instead of the least cost route.

To illustrate the same, we will look at the Bengal Plumbing transportation problem.

Transportation Matrix for Bengal Plumbing From \ To Warehouse E Warehouse F Warehouse G Factory Capacity Plant A
Rs.30 100 Plant B


A market in any one of a variety of different systems, institutions, procedures, social relations or infrastructures whereby persons trade, and goods and services are exchanged, forming part of the economy. It is an arrangement that allows buyers and sellers to exchange things. Markets vary in size, range, geographical scale, locations, types and varieties of human communities, as well as in the types of goods and services traded. Some Examples include, local farmer's market held in town squares, Shopping Centres or shopping malls, Financial Markets such as International currencies or commodity markets or Equity stock markets, legally centred markets such as pollution permits, and illegal markets such as black markets for illicit drugs or weapons. In mainstream economics, the concept of market is any structure that allows buyers and sellers to exchange any type of goods, services and information. The exchange of goods or services for money is called a transaction. Thus a market ha…