Capital can make labour more efficient through sophisticated machinery, whilst the entrepreneur may create a more efficient technique, such as that invented by Henry Ford with the production line. However, it equally relies of land, capital, and the entrepreneur. This is because labour is seen as the key factor in the production process, so it should command the highest percentage of the sale.īy itself, labour is a key component. Therefore, if a good is selling for $10, the labourer should receive a large proportion, perhaps even as high as $9. The socialist viewpoint is that labour is key to creating added value. Labour is a very contentious component as a factor of production. Essentially, it is any work an individual has to do to produce an output. So, whilst towing the fields is labour, so too is working in the office at a computer. LabourĪs a factor of production, labour covers both physical and mental labour. The entrepreneur is the chef, and with their input, those ingredients are transformed into a beautiful and delicious cake. On their own, they are just ingredients with no real purpose. In a way, we can look at labour, land, and capital as the ingredients to a cake. There is also the fourth, the entrepreneur, that puts all these together to create the final product. Factors of ProductionĪs we have already discussed, there are three physical factors of production in labour, land, and capital. They required an entrepreneur to put their idea into action and use the other factors of production to create the product they envisaged. Whether this is the iPhone, the television, or even a simple toaster.
Through the entrepreneur, the other factors of production are combined to create a final product. Whilst not tangible, it is definitely a factor of production, for, without it, labour, land, and capital all go unused. These are the traditional factors of production, but we can also include entrepreneurship in this category. Quite simply, the production function calculates the amount of labour, capital, and land that would produce the optimal level of output. The level by which labour is required over the capital, or capital over land, can vary with the relationship between them called the production function. For instance, some are capital intensive such as oil extraction, whilst others are labour intensive, such as restaurants. Each industry depends on one factor more than another.
The factors of production come together to create an economic output.There are four main factors of production land, labour, capital, and entrepreneurship.
0 kommentar(er)
