Factors of production in a manufacturing entity

  

Date Posted: 4/7/2012 3:52:04 AM

Posted By: sashoo  Membership Level: Silver  Total Points: 382

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FACTORS OF PRODUCTION.

Definition:

A factor of production is an input into a production process. It includes land, labor, capital, organization and entrepreneur.

Land, labor, and capital are generally referred to as traditional factors of production. Organizers and entrepreneurs ensure that the traditional factors of production are utilized to achieve the objective of a company.

The factors of production are as outlined below:

1. LAND

2. LABOR

3. CAPITAL

We will examine each one of them as follows:

1. LAND AS A FACTOR OF PRODUCTION

This refers to resources made available by nature and includes:

a) Earth’s surface: Includes farming, forestry and other activities.

b) Earth’s crust: Includes mining activities and other activities.

c) Water bodies: Includes fishing, transport and other activities.

LAND AS A MOBILE FACTOR

Land is said to be mobile because it can be transferred to be used in a production of process e.g. moving sand from the waters to a construction site etc. It is also a mobile factor because it has got the ability to be used for varied activities within a short period of time.

LAND AS AN IMMOBILE FACTOR

It is difficult to transfer land from one place to another to be utilized in a production process e.g. fishing activities cannot be done anywhere a part from the waters. Mining has to be done where there are minerals.

RETURNS / BENEFITS / IMPORTANCE OF LAND IN AN ECONOMY

i) It yields income into a country. This is so because goods and services produced on land are sold internally to provide revenue.

ii) It provides commodities required by people in a country.

iii) It is the backbone on which all economic activities take place e.g. farming, manufacturing etc.

iv) It improves the standard of living of people in a country. This is so because people are able to get goods and services to meet their basic requirements.

2. LABOR AS A FACTOR OF PRODUCTION

This simply refers to

the supply of human resources both physical and mental, which are used in the production of goods and services.

Labor force in this context refers to all those people above the age of 18 who are able and willing to work i.e. they can be utilized in a production process. In the context of business organization, labor force refers to junior employees in organizations - office messengers, clerical officers, typists, drivers, gardeners etc.

RETURNS / BENEFIT / IMPORTANCE OF LABOUR IN AN ECONOMY

i) It is a source of labor market in a country. This is so because a country with enough labor force avoids importation of expensive expatriates from other countries.

ii) Availability of skilled manpower in a country enables production of high quality goods and services.

iii) The Government taxes employees on their wages and salaries (P.A.Y.E.). This earns the Government revenue to use in various economic activities like education, health etc.

iv) Employees also save a portion of their salaries and wages and invest it in small business activities.

v) Employees contribute to economic development in a country.

vi) Increase in the skills of workers in a country will lead to long term efficiency in the production of goods and services.

3. CAPITAL AS A FACTOR OF PRODUCTION

Capital is defined as that amount of money invested in a business concern by the owner or owners. This can also be termed as owners’ equity.

RETURNS / BENEFIT / IMPORTANCE OF CAPITAL IN AN ECONOMY

i) It enables business people to purchase capital equipment and machinery and raw materials that are used in the production process.

ii) It is used to pay employees’ wages and salaries.

iii) It creates employment opportunity to the citizens of a country in two ways:

a) It has to be invested into productive activities that require people to work on.

b) People have to be employed when capital is used for producing goods and services i.e. when it is put in active use.

iv) It enhances continuity of business activities in an economy.

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