Thursday, July 7, 2016

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