Factors of Production in
Relation to Production
Management
Topic 2
Introduction
• Anything that assist production is termed as
factor of production; but mere existence is not
necessarily a factor of production.
• It become a factor of production only when it
actually assist or contributes to production.
• They are said to be rewarded for the contribution
that they make towards production.
Factors of Production
• Factors of production are;
1. Land
2. Labor
3. Capital, and
4. Entrepreneurship/ Enterprise's
Land
• Land is original and primary factor of production,
without land production process can not exceed
further.
• Therefore it can be referred as a free gift of nature
and is considered the most important factor of
production. Hence without land production would
not be able to occur.
• One should bear in mind that these natural
resources comes from above and below the earth.
Land can be further divided into renewable and
non-renewable resources.
1. Renewable Resources; those resources that can
be replaced as quickly as it is used; continually
replaced for examples: Trees, Fishing, Agriculture,
Forestry and so on.
2. Non renewable Resources; those resources that
can not be replaced after they have been used, can
not be replaced after they have been consumed;
for examples: Bauxite, Coal, Oil and so on.
Note:
– All the things we call natural resources.
– Comes from the air, water, or the earth
– Land, minerals, water
Characteristics of Land
• Land is free gift of nature.
• Land has no cost of production.
• Limited in supply.
• Land is immobile.
• Land is subject to law of Diminishing Returns.
Labour
• Labour is human factor of production.
• This factor of production refers to the human input of
work to produce the goods and services. The power
to work; human effort of any kind that either be
manual (working with the hands such as carrying,
cutting) or mental (using the brain such as trading,
accounting)
• It involves the physical and mental efforts of
individuals as they convert natural resources in to
finished goods and services.
• Labour can be classified as; Unskilled, Semi skilled,
Skilled and Professional.
• Unskilled labour; there is no special ability required to
perform tasks, for examples; Men who carry blocks and
buckets of cement on construction sites.
• Semi skilled labour; the ability and skill to do a
particular task is only partially developed, for
examples; nurses aide, waiter /waitress and so on.
• Skilled labour; there is special ability to a particular
job, these skills are developed through specialized
training, for examples; carpenter, plumber, electronics
and so on.
• Professional labour; those individuals with the highest
level of knowledge based education and managerial
skills with a bachelor degree or diploma, for examples;
teachers, bank managers and so on.
Characteristics of Labour
• Labour is human factor.
• Active factor.
• Labour can not be stored.
• No two labours are identical.
• Labour service can not be separated from the
work.
• Labour has greater mobility than land
• A labourer sells his service only
Productivity of labour
• This is output per man-hour, (where production is
the output per hour/ day/week) and is measured
by the formula;
Units produced
Productivity =
Labour-hours used
• It is the rate of production of the workforce. An
increase in productivity lowers the cost of
producing goods.
Factors Influencing Productivity
• Level of education and training of the worker
• Working conditions
• Motivation
• Attitude to work
• Health of the workers
• Good management
Capital
• Capital is a man-made resource of production
used to produce further wealth. It refers to the
stock of capital assets, such as factories, machines,
tools and equipments, raw materials, transport,
vehicles etc.
• equipment and people will you need to create
your product.
• Therefore capital can be defined as “Produced
means of production.”
Types of Capital
• Physical capital: What tools, machines and
factories will you needed to create your product
• Financial capital: funds the firm use to buy
physical capital
• Human capital: What knowledge, skills,
education and experience will your employees
need to have in order to produce your product
(for example: a seamstress , a chemist, a
computer technician)
• Note;
• Goods made by people and used to produce
other goods and services
• Tools, instruments, machines, buildings, and
other constructions that have been produced
in the past and that businesses now use to
produce goods and services.
Characteristics of Capital
• Capital is man made factor of production
• Supply of capital is elastic
• Capital has mobility
• All capital is wealth but not all wealth is capital.
Entrepreneurship
• Entrepreneurship is said to be the (4th) fourth factor
of production. This refers to a person who
coordinates all factors of production; (Land, Labour
and Capital) in order to produce goods and services.
• Entrepreneur is a person who brings in Land, Labour
and Capital in one places and uses it for the
production process.
• Is person who decides;
– What to produce?
– Where to produce?
– How to produce?
• We can all agree that other factor of production is
very important in process of production, but
without an entrepreneur to organize these factors
production could not have been achieved or
achieved effectively.
• Entrepreneur are said to be owners of the
business and their role to take on risks of the
business, and also to make decision that will
ensure the business makes a profit.
Functions of Entrepreneur
• To raise capital
• To ensure that all factors of production are being
used correctly.
• To identify and clarify decisions regarding business
• To take risks by entering the market place.
• To make any changes that are necessary towards
the growing of the business
• To organize different types labour required.
Characteristics of Entrepreneur
• He must be a good administrator
• He must possess complete knowledge
• He must be person of imagination
• He must be a man of action
• He must be a person who is not avoiding to
take risks when matter.
Influence of Factors of Production in
Production Process
Land
What Raw materials are needed to produce your
product?
–The “gifts of nature” that we use to produce
goods and services. All the things we call natural
resources.
–Comes from the air, water, or the earth
–Land, minerals, water
Labor
What will your employees have to do to create
your product?
• What work will need to be done to turn your raw
material into your finished product
– Work time and work effort that people
devote to producing goods and services
• People’s efforts, labor
• Effort can be physical or mental
• Capital
equipment and people will you need to create your
product
• Entrepreneurship
The human resource (PEOPLE) that organized and
combines labor, land, capital.
• The quantity and quality of entrepreneurship is
hard to describe and measure.
• But we can easily recognize brilliant entrepreneurs
by their enormous financial success.
– Sam Walton (Wal-Mart), Bill Gates (Microsoft), and
Michael Dell (Dell Computers) are examples of
outstanding entrepreneur's.
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