![]() This reveals that in the production process none of the factors can be ignored and in some cases ignorance to even slightest extent is not possible if the factors are perfectly specific. The specificity may not be complete as factors may be used for production of other commodities too. Capital is the tools and buildings used to produce things, and entrepreneurship is the know-how of putting it all together. Land refers to natural resources, while labor is the work that goes into production. Machines and equipment’s, specialized workers and raw materials are a few examples of the specificity of factors of production. This transcript discusses the four factors of production: land, labor, capital, and entrepreneurship. It reveals that the inputs are specific to the production of a particular product. The principles of returns to scale is another manifestation of complementarity of inputs as it reveals that the quantity of all inputs are to be increased simultaneously in order to attain a higher scale of total output. The factors of production are also complementary to one another, that is, the two or more inputs are to be used together as nothing will be produced if the quantity of either of the inputs used in the production process is zero. It is the substitutability of the factors of production that gives rise to the laws of variable proportions. The factors of production or inputs are substitutes of one another which make it possible to vary the total output by changing the quantity of one or a few inputs, while the quantities of all other inputs are held constant. Sometimes a new production function of the firm may be adverse as it takes more inputs to produce the same output. The new production function brought about by developing technology displays same inputs and more output or the same output with lesser inputs. ![]() With every development in technology the production function of the firm undergoes a change. The production function of a firm depends on the state of technology. Land as a Factor of Production Land is a broad term that includes all the natural resources that can be found on land, such as oil, gold, wood, water, and vegetation. It shows the flow of inputs resulting into a flow of output during some time. There are four factors of productionland, labour, capital, and entrepreneurship. ![]() However, here one thing that becomes most important to quote is that like demand function a production function is for a definite period. The reason behind physical relationship is that money prices do not appear in it. In other words, we can say that production function is an indicator of the physical relationship between the inputs and output of a firm. There are four categories of resources, or factors of production: Natural resources (land) Labor (human capital) Capital (machinery, factories, equipment) Entrepreneurship Natural Resources Natural resources have two fundamental characteristics: (1) They are found in nature, and (2) they can be used for the production of goods and services. In this way, production function reflects how much output we can expect if we have so much of labour and so much of capital as well as of labour etc.
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