Energizer
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CAPITAL
LAND
LAND
LABOR
LABOR
CAPITAL
ENTREPRENEUR
MODULE 3:
PRODUCTION
FACTORS OF PRODUCTION,
PRODUCTION FUNCTION, AND TYPES
OF PRODUCTION & ECONOMIC
SECTORS
OBJECTIVES
• Identify and describe the production
processes;
• Explain and value the importance of
factors of production.
• Understand the role of technology and
different economic sectors in production.
• Describe the Production Function;
• Enumerate the Type of Production &
Economic Sectors
What is Production?
Production means, a process by which
resources (men ,material, time etc.) are
transformed into a more useful commodity
or services.
In general, Production means
transforming inputs ( Labour, machines,
raw materials, etc.) into an useful & desired
output.
•For e.g.
Steel from iron ore,
Legal services like medical, consultancy,
hospitality etc.
Factors of Production
Factors of Production are parameters which
affects output of any production.
Factors of production means ‘inputs’ and finished
goods means
‘output’.
Input decides the quantity of output i.e. output
depends upon input.
Input is the starting point and output is the
end point of production process.
Major Factors of Production
There are basically 4 factors
on which production
depends-:
1)Land,
2)Labour,
3)Capital,
1)LAND
Land is an important factor
because-:
Land is an unavoidable factor, because it affects
major issues, like,
Accessibility to –:
Raw materials,
Cheap labour,
Water & electricity resources,
Transportation etc.
2) LABOUR
The human power required for any production
process is called
‘Labour’.
Labour is a resource which is used involved in
every stage of production, either it is manufacturing
or assembling, it affects production directly on
indirectly.
Labourer can be classified as -:
Mental Labourer
Physical Labourer.
Labor versus Labour
• Labor and labour are the same
word. LABOR is preferred in
American English, whereas
LABOUR is standard in British
English.
• There is no difference in
meaning between the two
spellings.
3) Capital
In Book-Keeping, Capital means amount invested by
businessman in the business.
In commerce subjects like O.C & S.P, Capital means finance
or
company's capital.
But, in economics, Capital is that part of wealth which
is used for production.
Capital as part of Wealth
Any Commodity own by any person is his wealth.
But when wealth is used in production process, it is
called CAPITAL. For e.g.
• A motor cab own by any person is his
wealth. But when this Car is used in
Taxi Services, then it is called CAPITAL.
4) Entrepreneur
The term 'Entrepreneur' has been derived from a French
word
'Entreprendre' meaning to undertake certain activities.
Normally, Entrepreneur has to perform two types of
functions which are explained here with the help of
pictures given in next slide-:
Qualities / Skills of an
Entrepreneur
Ability to
organize.
Professional
approach
Risk bearer
Decision Making
Negotiation skills
Production Function
• The production function tries to explain the
efficient allocation of resources.
• However, with of a concrete mathematical
equation it is explained by concept which
assume a theoretical maximum output that
may be obtained given a set of inputs.
• Alternatively, it aims to find the minimum
input requirements to achieve a given level
of output this theory is explained by the
production possibility frontier and marginal
production concepts.
Fixed versus Variable Inputs
• Fixed Inputs refers to • Variable Inputs on
the factors that are the other hand are
not affected by factors of
changes in output. In production that
short, these inputs change when
remain unchanged there is a change
regardless of the rise in the level of
and fall in the amount output. An
of output. example is labor.
Short Run versus Long Run
• A producer is • In contrast when a
operating in the business needs to increase
Short Run even its initially “fixed”
production when inputs it is operating in the
there are factors of Long Run. Long run
production that decisions normally involve
remain fixed. business expansion or
increase scale of
operations, both of which
require higher level of
fixed factors of production.
Types Of Production And
Economic Sectors
• The economic sectors may be divided into
three main categories. Based on the
production process, businesses are
grouped into industries, industries into
industry groups, and finally, industry
groups into sectors.
• There are three sectors in the economy-
agriculture, hunting, forestry, and fishing
(AHFF); industry; and service.
Types Of Production And
Economic Sectors
PRIMARY SECTOR
• the primary sector includes
industries which generate output
through the extraction of natural
resources from the environment.
Types Of Production And
Economic Sectors
SECONDARY SECTOR
• the secondary sector includes
manufacturing which involves the
process of turning raw materials into
finished goods.
Types Of Production And
Economic Sectors
TERTIARY SECTOR
• the tertiary sector includes all services that
enable the sale of output from the primary and
secondary production.
• Example of businesses in this category include
transportation services, banking, and financial
services, trading, and communication. In
addition, government services are also
considered tertiary production.
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