Factors of Production
Factors of Production are resources required to produce goods or services. They are classified into four categories.
- Land: the natural resources that can be obtained from nature. This includes minerals, forests, oil and gas. The reward for land is rent.
- Labour: the physical and mental efforts put in by the workers in the production process. The reward for labour is wage/salary
- Capital: the finance, machinery and equipment needed for the production of goods and services. The reward for capital is interest received on the capital
- Enterprise: the risk taking ability of the person who brings the other factors of production together to produce a good or service. The reward for enterprise is profit from the business.
Entrepreneurs need a number of characteristics in order to be successful. These include being:
Hardworking – when starting a new business, it is normal to work long hours. The entrepreneur will also need to carry out a variety of tasks.
Organised – the entrepreneur will need to keep on top of all the day-to-day tasks as well as planning for the future. They will have to arrange all of the finances and meet deadlines.
Innovative – the entrepreneur will have to keep coming up with new ideas to keep the customers happy. Willing to take a risk – starting a new business comes with a lot of risk, an entrepreneur has to be willing to risk money, time and possibly give up their old job.
Specialisation and the Division of Labour
Specialisation occurs when a person or organisation concentrates on a task at which they are best at. Instead of everyone doing every job, the tasks are divided among people who are skilled and efficient at them. Workers will also specialise in certain tasks and skills. This is called the Division of Labour.
Advantages:
- Workers are trained to do a particular task and specialise in this, thus increasing efficiency
- Saves time and energy: production is faster by specialising
- Quicker to train labourers: workers only concentrate on a task, they do not have to be trained in all aspects of the production process
- Skill development: workers can develop their skills as they do the same tasks repeatedly, mastering it.
Disadvantages:
- It can get monotonous/boring for workers, doing the same tasks repeatedly
- Higher labour turnover as the workers may demand for higher salaries and company is unable to keep up with their demands
- Over-dependency: if the worker(s) responsible for a particular task is absent, the entire production process may halt since nobody else may be able to do the task.
Labour-Intensive and Capital-Intensive Production
Whether a company chooses to use labour-intensive or capital-intensive methods of production will involve many factors:
- Finance available – a large amount of capital is required to invest in capital-intensive production. Some businesses may not be able to afford to invest in this method of production
- Quantity – if large quantities of identical goods are required then a company will be more likely to use capital-intensive methods of production. Whereas if the product being supplied is a low quantity of a tailored product then labour-intensive methods would be preferred
- Technology – if the required technology to produce the goods is unavailable than the company would have no choice but to use labour intensive
| Capital-Intensive Production | |
| Advantages | Disadvantages |
| Generally more cost effective if large quantities are producedMachinery is often more precise and consistentMachinery can operate 24/7Machinery is easier to manage than people | Huge set-up costsLong delays may occur when there is a breakdownMay be inflexible – a lot of machinery is highly specialisedMay leave the workforce facing redundancy and effect morale |
| Labour-Intensive Production | |
| Advantages | Disadvantages |
| Generally more flexible than capital – can be retrained, for exampleCheaper for small-scale productionCheaper for large-scale production when labour is cheapPeople are creative and can solve problems and make improvements | People are more difficult to manage – they have feelings and reactionsPeople can be unreliable – they may be sick or leave suddenlyPeople need breaks and holidaysPeople sometimes need to be motivated to improve performance |
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