Factors of Production (2)

In this article, you will learn about the factors of production.

If a company is going to make a profit, it has to acquire the necessary inputs or resources, which are called factors of production.

Products can be goods or services, and they can be produced in the same way as any other inputs. Due to the many stages and hands involved, the final product must be consumed by the final consumer in its consumable form. The quantity of inputs and the firm’s production capacity determine the production level.

What are the Factors of Production

What are Factors of Production?

In a nutshell, there are four factors that determine the entire production process. These are the Factors:

Land as a Factor

Land as a Factor

If you’re talking about factors of production, the word “land” has a different meaning in economics because it covers everything nature gives us—not just an area or the Earth’s surface—and not just land. Rent is a form of compensation for the use of land.

  • The land is a gift from nature that does not require any human effort to create or make available for production purposes.
  • As with all natural resources, the land is limited in supply. So, unlike other production factors, its supply cannot be increased simply by increasing consumer demand.
  • Natural in nature, it can’t be destroyed. It can also be put to many different kinds of good use.
  • An immovable factor of production, land cannot be moved from one location to another, nor can it produce anything on its own.
  • As the quality and condition of land surfaces varies widely, it is heterogeneous in that no two are identical.

Labor as a Factor

Labor as a Factor

Employees who put in the time and effort to produce a product or service for monetary compensation are referred to as labourers.

  • It is essential for labourers to receive fair wages, good treatment, a pleasant work environment, and adequate working conditions.
  • In other words, if no labour has been put in on a particular day, no amount of overtime work will be able to make up for it.
  • For other factors such as land and capital, it is an active factor of production that must participate in order to produce.
  • The efficiency of labour varies from person to person, depending on their abilities, competence, productivity, and other factors. This is because labour is heterogeneous in nature.
  • Laborers are free to move from one location or business to another in search of work that suits their skillsets.
  • Negotiating power for the Labour Party is weak and unpersuasive. Due to the fact that labour cannot be stored, workers are always ready to work for the wages set by the employer.
  • Changing the supply of labour is possible, but the supply is inelastic. Another factor that affects supply is the population size and the individual’s desire to work, as well as their age and sex composition.

What is human capital management (HCM)?(Opens in a new browser tab)

Capital as a Factor

Capital as a Factor

Human creations, such as tools, machinery, equipment, money and other capital, are all examples of capital that can be used to produce more wealth. However, capital is not an original and fundamental means of production, but one that has been created.

  • In contrast to land, which is a natural resource, it is a man-made resource.
  • As a secondary factor of production, it is artificial.
  • It can be easily moved from one location to another because of its portability.
  • An opportunity cost exists because it could be used for something else.
  • Depending on the demand, the amount of capital available can either be increased or decreased As a result, the supply is quite flexible.
  • Although capital is long-lasting and depreciates over time, it is durable in nature.

Entrepreneur as a Factor

Entrepreneur as a Factor

Without an entrepreneur, the production process cannot begin because the other factors are scattered or disorganized, and it is the entrepreneur who takes charge of organising and assembling them in order to begin the production process.

Entrepreneurs are innovators, managers, organizers, leaders, risk-takers, and coordinators, all at once. Profit is the only reward for a business owner.

  • Other production tools are planned, organised, controlled and allotted by him/her.
  • An entrepreneur is someone who is willing to take on the risks and uncertainties that come along with starting and running a business.
  • If you’re looking for a leader who is able to plan and strategize ahead of time, as well as make quick and rational decisions for the company, look no further.
  • He/she has the ability to transform products and services into living examples of innovation.
  • In order to remain competitive in today’s market, an entrepreneur implements cutting-edge production methods into the company’s operations.

What is Global Supply Chain Management ?(Opens in a new browser tab)

Putting the Factors Together

Starbucks Corporation is an example of entrepreneurship (SBUX). In order to produce and distribute coffee, a retail coffee chain needs land, capital, and workers (employees at its retail outposts for service). A market for such a chain existed, and Howard Schultz, the company’s founder, figured out how the other three factors interconnected. 8

A majority of American businesses are small businesses started by entrepreneurs. While large corporations are excellent examples, For the sake of economic growth, countries are creating policies and frameworks that facilitate entrepreneurship.

It is impossible to make even a tiny pin without the participation of the factors of production, and this is true for everything we do.


Factors of Production Definition. (n.d.). Retrieved February 18, 2022, from https://www.investopedia.com/terms/f/factors-production.asp

What are the Factors of Production? definition and factors – Business Jargons. (n.d.). Retrieved February 18, 2022, from https://businessjargons.com/factors-of-production.html

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