FACTORS OF PRODUCTION

By:Ruchika SaxenaIV yr. – ECE10EJTEC091

PRODUCTION

Production means creation or addition of utilities. Any activity that makes a product more useful is called production.

FACTORS OF PRODUCTION Production is process of transformation of

inputs into outputs. Anything that renders a help in the process of production is called factor of production

In the words of Prof. J.K Mehta, “Anything that assists production is called factors of production.’’

In economics, factors of production are the inputs to the production process. Finished goods are the output.

PRODUCTION FUNCTION

Input determines the quantity of output Input is the starting point and output is the end point of production process and such input-output relationship is called a production function

MAIN FACTORS OF PRODUCTION

The factors of production may be neutral or manmade. Modern economists have grouped as:(i)Land(ii)Labour(iii)Capital(iv)Entrepreneur(v)Management

FIRST FACTOR - Land

Land is not created by mankind but it is a gift of nature. So, it is called as natural factor of production. It is also called as original or primary factor of production. Normally, land means surface of earth.

It includes following natural resources:-

On the surface e.g. soil, agricultural land, etc. Below the surface e.g. mineral resources, rocks, ground

water, etc. Above the surface e.g. climate, rain, space monitoring, etc.

Characteristics Land is a free gift of nature

Land is a free gift of nature to mankind. It is not a man-made factor but is a natural factor.

Land is a primary factor of productionThough all factors are required for production, land puts foundation for production process. Starting point of production process is an acquisition of land. So, it is a primary factor.

Land has perfectly inelastic supplyFrom society's point of view, supply of land is perfectly inelastic i.e. fixed in quantity. Neither it can be increased nor decreased. Simply, you can not change size of the earth. But from individual point of view, its supply is relatively elastic.

Land is a passive factor.Land itself doesn't produce anything alone. It is a passive factor. It needs help of Labour, Capital, Entrepreneur, etc. Like labour and entrepreneur, it doesn't work on its own initiative. So it is a passive factor.

Land may have diminishing returnsHere, return means quantity of crops. By using fertility of land with the help of capital and labour continuously, returns gets diminished because of reduction in fertility.

Land has a derived demand.Demand for agricultural goods is a direct demand and for producing such goods, land is indirectly demanded. So, as a factor, land has a derived demand from consumer's point of view.

o Land is perfectly immobileMobility means ability to move. Movement of land from one place to another is impossible. Thus, physically, land is perfectly immobile. But it has certain occupational mobility because it can be used for variety of occupations, like agricultural use or for construction of houses.

Land has a site or location valueEvery piece of land has its certain site or location value. Such value depends upon quality of its location. Land near to sources of raw materials and other infrastructure facilities always enjoy high site value. Here accessibility of land plays an important role.

 

SECOND FACTOR- LABOUR

Labour as factor of production is any human effort used productively (with an output of goods or services) for which payment is made. Honorary work & work for enjoyment are excluded.

CHACTERSTICS Labourer sells his services not himself: If labourer is

employed means an employer only pays in the form of wages on account of services received from the labourer. Thus labourer is only selling his services not himself.

Labour is more perishable than other commodity: If time passes, it lapses forever. Therefore a day lost which out work means the days work gone for ever. That is why many times workers have to accept lower wages rather than earn nothing.Labourer has not the same power of bargaining as their employers. This is because labour cannot be stored up and labourers are poor and ignorant.

Man, not a machine: A labourer differs from machine. He can not render services like machine. After all labourer is man and he has feelings and likings. If good surrounding, health, recreation is provided, he can work efficiently otherwise he will not work efficiently.

Less mobile: Generally labourer does not want to leave his home. It is therefore labour is such less mobile a compared to other factors.

Supply Independent of its demand: The supply of labour is always independent of its demand and cannot be easily and quickly increased or decreased. If supply of labour is surplus, their numbers can be reduced only by a painful process of starvation. But when sudden increase demand for labour, as during war, wages will rise but supply cannot be quickly increased.

Labourer differs in efficiency: Like machinery every worker can not render same quantum of work labourer they very inefficiency and therefore wages differ from labourer to labourer.

THIRD FACTOR-CAPITALCapital has been as that part of person’s wealth, other than land, which yields an income or which aids in the production of further wealth.

Characteristics 1)Capital is manmade factor of production.2) It involves time element.3) Capital may be fixed: i.e. it is durable use pre use producer goods e.g. machinery, well in

agriculture.

FOURTH FACTOR -ENTREPRENEUR

The fourth factor of production is entrepreneurship. An entrepreneur is a person who combines the other

factors of production – land, labour, and capital – to earn a profit.

The most successful entrepreneurs are innovators who find new ways produce goods and services or who develop new goods and services to bring to market.

Classification of Entrepreneur

A. Based on functional characteristics

Innovative entrepreneur: Such entrepreneurs introduce new goods or new methods of production or discover new markets or reorganize the enterprise.EX: P&G-new product, new ways of product, new markets and reorganise the enterprise.

Imitative or adoptive entrepreneur: Such entrepreneurs don’t innovate,they copy technology or technique of others.EX: Chinese mobiles.

Fabian entrepreneur: Such entrepreneur display grates situation and scepticism in experimenting with any change in their enterprise. They change only when there is a serious threat to the very existence of the enterprise. Being Reluctant to face risk, they continuously follow the foot steps of their predecessors.

Drone entrepreneurs: Such entrepreneurs are characterised by a diehard conservatism and may even be prepared to suffer the losses. These entrepreneur are unwilling to make any change in the production system, even if the system causes losses repeatedly.EX: Acc. To MC Kinsey in 2015, 110-130 million people will be unemployed out of which 90-100 million people will be Fresher.

B. Based on development angle Prime mover: This entrepreneur sets in motion a powerful

sequence of development expansion and diversification of business.EX: Ambani

Manager: such an entrepreneur doesn’t initiate expansion and its content in just staying in business.

Minor innovator: This entrepreneur contributes to economic progress by finding better use for existing resources.EX: minimum wastage maximum production.

Satellite: This entrepreneur assumes a suppliers role and slowly move towards a productive enterprise.

Local trading: such entrepreneur limits his enterprise to the local market.

C. Based on entrepreneurs business

Manufacturing Wholesaling Retailing Service

D. Based on personality traits The improver: They have unwavering to run these businesses

with high integrity and ethics. The advisor: “Customer is right and we must do everything to

please him” because company is built by advisors and advisors become customer focused.

The superstar: All depends upon the charisma and on the high energy of the superstar CEO.EX: Richard Branson (400 co’s/Virgin coin), Larry Page (Google), Lt. Steve Jobs (Apple), Ratan Tata (Tata sons).

The artists: Are highly creative type, very conscious about business. If feedback is constructive i.e. positive than also lets go with negative self-image.EX: Aamir Khan, Michael Dell (Dell), MC Cormich (EMI).

The visionary: Too focused on dreams with little focused on reality.EX: Bill Gates (Microsoft), Kishore Biyani (Future Group), Warren Buffet (Berkshire Hathaway), Sam Walton (Walmart).

The analyst: More focused on fixing problems in a systematic way.EX: Gordon Hore (Intel), Rana Kapur (Yes Bank), Gautam Adani (Adani Groups)

The fireball: A business owned and operated by a fireball is full of life, energy and optimism. They have “A get it done attitude in a playful manner”.EX: Malcolm Forbes – Forbes magazine

The hero: Have an incredible will and ability to lead the world and your business through challenges.

The healer: They provide nurturing harmony to their business, they have uncanny abilities to survive and persists inner calm.EX: Dr. Bindeshwar Pathak (Sulabh International), Kumar Manglam Birla (Son of L.M Birla).

The Opportunistic: take advantage of opportunities as they occur.EX: Mark Zuckerberg

FIFTH FACTOR- MANAGEMENT

Management in all business and organizational activities is the act of getting people together to accomplish desired goals and objectives using available resources efficiently and effectively.

Management comprises planning, organizing, staffing, leading or directing, and controlling an organization (a group of one or more people or entities) or effort for the purpose of accomplishing a goal.

Basic functionsManagement operates through various functions, often classified as planning, organizing, staffing, leading/directing, controlling/monitoring and motivation.

Planning: Deciding what needs to happen in the future (today, next week, next month, next year, over the next five years, etc.) and generating plans for action.

Organizing: (Implementation)pattern of relationships among workers, making optimum use of the resources required to enable the successful carrying out of plans.

Staffing: Job analysis, recruitment and hiring for appropriate jobs.

Leading/directing: Determining what must be done in a situation and getting people to do it.

Controlling/monitoring: Checking progress against plans. Motivation: Motivation is also a kind of basic function of

management, because without motivation, employees cannot work effectively. If motivation does not take place in an organization, then employees may not contribute to the other functions (which are usually set by top-level management).

Basic roles

Interpersonal: roles that involve coordination and interaction with employees

Informational: roles that involve handling, sharing, and analyzing information

Decisional: roles that require decision-making.

Functions of Management

1. Planning

It is the basic function of management. It deals with chalking out a future course of action & deciding in advance the most appropriate course of actions for achievement of pre-determined goals.

Planning is deciding in advance - what to do, when to do & how to do. It bridges the gap from where we are & where we want to be”.

A plan is a future course of actions. It is an exercise in problem solving & decision making. Planning is determination of courses of action to achieve desired goals.

Thus, planning is a systematic thinking about ways & means for accomplishment of pre-determined goals. Planning is necessary to ensure proper utilization of human & non-human resources.

2. Organizing It is the process of bringing together physical, financial and

human resources and developing productive relationship amongst them for achievement of organizational goals.

“To organize a business is to provide it with everything useful or its functioning i.e. raw material, tools, capital and personnel’s”.

To organize a business involves determining & providing human and non-human resources to the organizational structure.

Organizing as a process involves: Identification of activities. Classification of grouping of activities. Assignment of duties. Delegation of authority and creation of responsibility. Coordinating authority and responsibility

relationships.

3. Directing

It is that part of managerial function which actuates the organizational methods to work efficiently for achievement of organizational purposes.

It is considered life-spark of the enterprise which sets it in motion the action of people because planning, organizing and staffing are the mere preparations for doing the work.

Direction is that inert-personnel aspect of management which deals directly with influencing, guiding, supervising, motivating sub-ordinate for the achievement of organizational goals.

4. Controlling It implies measurement of accomplishment against the

standards and correction of deviation if any to ensure achievement of organizational goals.

The purpose of controlling is to ensure that everything occurs in conformities with the standards. An efficient system of control helps to predict deviat

“Controlling is the process of checking whether or not proper progress is being made towards the objectives and goals and acting if necessary, to correct any deviation”.ions before they actually occur.

Controlling has following steps:1.Establishment of standard performance.2.Measurement of actual performance.3.Comparison of actual performance with the standards and finding out deviation if any.4.Corrective action.

CONCLUSION

The concept of the factor of production is of great significance in modern economic study. It is used in the theory of production in which the a range of combinations of factors of production help in generating output when a firm functions under rising or declining costs in the short-run and when the proceeds to scale boosts or shrinks in the long run. Moreover, we can also know how the least cost combination of factors can be attained by a firm.

THANK YOU….