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The factors of production in business

ArticleID 93  
Writer Isaac Thuku
Category Personal Article

Factors of production are generally the required resources for the generation of goods and services. They are the backbone of the economy. Every successful business has to focus on the four factors of production in order to achieve the set goals. These factors are Land, Labor, Capital and entrepreneurship. The right balance in all factors is essential for success in business. Every factor is important in order to produce goods and services.

Land refers to the physical land and all the natural resources in it. Land provides the space and all the raw materials for production. This includes water, air, soil, flora and fauna and minerals. Some resources like forests are renewable while others like oil and gas are nonrenewable. Land is usually a limited resource. The reward for land is rent.

Labor as a factor of production includes all human resources. This entails the workers and employees who work together in achieving production goals for monetary purposes. Every worker or employee has a unique level of skills, qualities and qualifications. Their biggest work is to transform raw materials into finished products or even provide other services in production. Activities under labor include arranging goods in a shop, cleaning, serving in a restaurant, teaching in school, driving passengers to the airport and treating patients in a hospital etc. Labor is flexible as workers can be assigned to work in different places. The reward for labor is wages.

Capital refers to the financial capital used when setting up a business. This money is used to purchase physical capital that can be used to produce goods and services. Capital involves all man-made resources. They can be machines, tools, equipment, infrastructure, factories etc. Capital is very different depending on the employees and the type of work they do. The reward for capital is interests.

Entrepreneurship involves the combining of skills in the other factors of production in order to make a profit. This is done by entrepreneurs who bring together Land, Labor and Capital under one management. Entrepreneurs start business enterprises and invest in businesses without having an assurance of making profits. Business and management skills are vital for an entrepreneur. Also an experienced entrepreneur will lead the business in achieving success and make profits. Entrepreneurs take risks but later enjoy the rewards. The reward for entrepreneurship is profits.

Production in business is important for the functionality of every department. The entrepreneur assures that the production manager has the required amount of Raw materials which will be processed by workers and employees. The finished products will then be distributed to the suppliers. The suppliers will disburse the goods to the different wholesalers and retailers who have ready market. Now the goods will be served and sold to consumers. Production cannot be done without the land which provides the space; the land produces different kinds of natural resources which are manufactured to be ready goods. Workers are needed to carry on the manufacturing and processing of raw materials.

Capital is essential in providing the required tools and equipment for the workers and the entrepreneur must be there to supervise the employees.

factors of production in business
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