Characterization of factors of production. Income from factors of production

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:39

Even without being a student of economics, people often come across such a concept as a factor of production. What are the main characteristics of the factors of production? Is it possible to receive income from them and how to do it? How to improve the efficiency of the use of labor resources and determine the minimum amount of costs? All this is described in the article below.

Characterization of factors of production

Factors of production - this is what launches the production process necessary to ensure demand for goods, works, services.

The main examples of factors of production are:

• earth;
• capital;
• labor;
• entrepreneurial ability;
• information.

It is worth considering separately the characteristics of the factors of production.

Earth

This is a natural resource used to reproducegoods necessary for human existence.

Land differs from other factors of production in that it is limited. A person is able to influence the fertility of the earth, but such an impact is also not limited. When characterizing a production factor, one can single out economic and potential resources that have not yet been involved in the production process. Despite the fact that the land is a natural resource, its improvement as a result of human intervention (fertilizers, the use of modern technologies to increase fertility), allows us to look at the factor as artificially created.

Capital

The set of production and financial investments required to start the production process. Without an initial capital investment or investment, the subsequent process of making a profit is not possible. Capital can be both own and borrowed. The optimal value of the ratio of own funds to borrowed funds is considered to be a coefficient included in the interval from 0.5 to 0.7.

Labor

The conscious activity of the individual, aimed at the production of goods that satisfy the demand and needs of society. As a result of this activity, tools of labor are mastered, ways of creating products are improved, the speed of information processing is increased, and the chemical and physical properties of the material are used to the fullest extent.

Entrepreneurship

Entrepreneurial ability is the very factor that connectsall available factors of production. It stands out as a separate economic resource, which, in addition to managers, includes the entire entrepreneurial infrastructure, ethics and culture. Also included in this category is entrepreneurial potential, which is considered a likely opportunity to acquire the qualities of a manager. It is the manager who is subsequently able to increase the efficiency of the use of labor resources and other factors.

Information

A resource that is an integral part of the production process. Information allows you to answer the three main questions of the entrepreneur: what to produce? for whom to produce? how much to produce? Due to the development of technology, information can now be obtained much faster and less costly. However, complete and reliable information is not always the main success factor. The transformed information leading to the maximum benefit is called knowledge. Knowledge is possessed by qualified personnel in the field of marketing, production and management.

Income from factors of production

Given market relations, all production resources can be easily bought or sold. Examples of factors of production have already been considered, now it is worth considering the income from them.

1. Land rent allows you to make a profit from the lease by the owner of a small area of a natural resource for temporary use. Acts in the form of absolute, differential and monopoly rent.
2. Salary is a monetary incentive for the workerstaff for the work done. The amount of payments is proportional to the qualifications of the staff, the complexity and quality of the work performed, and working conditions. Wages also include compensatory and incentive payments.
3. Business profit - positive difference between income and production costs. Profit can be accounting (the difference between all income and all expenses) and economic (the difference between accounting profit and additional expenses). The negative difference between income and expenditure is called a loss.
4. Roy alty is a monetary license fee for the use of copyrights, franchises, patents, natural resources and other types of property. The percentage of payment is agreed in advance and can be fixed on the total sales volume, value, or set depending on the economic result of using the property.

Dependence of production growth on production factors

Given the constant increase in competing enterprises, each entrepreneur is determined to determine the optimal ratio of production factors (labor, land, capital, information) to obtain greater profits. The ratio of factors of production to the maximum allowable output of goods produced due to the set of factors mentioned characterizes the production function.

This function determines the relationship between the costs invested in production and the volume of output. It is built for each technological structure separately. Updatetechnological base will immediately be reflected in the product launch and will affect the function.

Also, the function can be used to determine the lower bound of costs that are necessary to produce a given volume of production.

When representing factors of production as inputs of labor, capital and materials, the production function is described as:

Q=f(L, K, M),

where Q is the maximum output that is allowed using the available equipment, labor (L), capital (K) and inventory (M).

The graphic representation of the production function is called the isoquant. Isoquant - a curve, a geometric arrangement of points corresponding to all variants of production factors, the use of which gives an equal volume of output. A graph representing a set of isoquants is called an "isoquant map".