Even without being a student of an economic field, people often come across such a concept as a factor of production. What are the main characteristics of production factors? Is it possible to receive income from them and how to do it? How to increase the efficiency of 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 whereby the launch of the production process necessary to ensure the demand for goods, work, services.
The main examples of factors of production are:
- land;
- capital;
- work;
- entrepreneurial skills;
- information.
It is worth considering separately the characteristics of the factors of production.
Land
This is a natural resource used to reproduce the goods 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 the factor of production, we can distinguish economic and potential resources that have not yet been involved in the production process. Despite the fact that land is a natural resource, its improvement as a result of human intervention (fertilizer, 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 necessary to start the production process. Without an initial investment or investment, the subsequent process of making a profit is not possible. Capital can be either own or borrowed. The optimal value of the ratio of own funds to borrowed is a coefficient that is in the range from 0.5 to 0.7.
Work
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 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 possible.
Entrepreneurial vein
Entrepreneurial ability is the very factor that combines all the available factors of production. It is allocated as a separate economic resource, which, in addition to managers, includes all entrepreneurial infrastructure, ethics and culture. Also included in this category is the entrepreneurial potential, which is considered a likely opportunity to acquire managerial qualities. It is the manager who subsequently is 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 three main questions of an entrepreneur: what to produce? for whom to produce? how much to produce? Due to the development of technology, obtaining information today is much faster and less costly. However, complete and reliable information is not always the main success factor. Transformed information leading to maximum benefit is called knowledge. The 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 safely purchased or sold. Examples of factors of production have already been considered, now it is worth considering the income from them.
- Land rent allows you to make a profit from the owner transferring a small area of natural resources for temporary use. It acts in the form of absolute, differential and monopoly rents.
- Salary - monetary incentive for working personnel for the work performed. The volume of payments is proportional to the qualifications of the staff, the complexity and quality of the work performed, and working conditions. Wages also include compensation and incentive payments.
- Profit from entrepreneurial activity - a positive difference between income and expenses of production. The profit is accounting (the difference between all income and all expenses) and economic (the difference between accounting profit and additional costs). The negative difference in revenue and expenditure is called loss.
- Royalty - 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.
