Factors of Production

These are agents or resources, which are combined in various proportions to make production possible.

The factors are:

i. Land
ii. Labour
iii. Capital
iv. Entrepreneurship

1. Land:

These are free gifts of nature and they include forests, mineral deposits, rivers, resources, wildlife and climate, and of course the earth’s surface. The reward for land is rent.

Characteristics of Land:

a. The supply of land is fixed.
b. Land is relatively indestructible.
c. Land is immobile.
d. Land is a free gift of nature.

Importance of Land:

The following are the importance of land;

i. Land is used for farming purposes.
ii. Land is used for livestock purposes.
iii. Land is used for fishery purposes.
iv. Land is used for wildlife purposes.
v. Land is used for collateral security.
vi. Land is used for construction purposes.
vii. Land is used for social purposes.
viii. Land is used for residential buildings.
ix. Land is used for industrial buildings.

2. Labour:

This is regarded as all human efforts of any kind, manual, mental, skilled or unskilled, artistic or scientific that is used in the process of production and rewarded with wages or salaries. Labour is divided into unskilled and skilled.

Characteristics of Labour:

a. Labour is human-generated.
b. Labour is mobile.
c. Labour is variable in quality and supply.
d. The skill of labour can be improved through education and training.
e. Labour controls and combines the other factors of production to a usable form.
f. Labour is perishable because any period of unemployment means loss of useful, productive hours that cannot be regained

3. Capital:

This is wealth used in the production of more wealth or man-made assets used in production. It exists in the form of tools, equipment, machinery, factories, vehicles, etc. which are used for production.

Capital is categorized into fixed capital, circulating capital, current capital, and social capital.

a. Fixed Capital: These are the real capital which is made up of fixed assets of any business organization such as industrial plants, factory machines, motor vehicles, tools, buildings, furniture, fittings, etc.

b. Circulating Capital: It is also known as working capital and consists of cash in hand, raw materials, overdrafts, plough back profits/retained profits, etc.

c. Current Capital: These are the capital resources used on a daily basis for running the business. They are finished goods and stock which can be converted to cash and vice versa. Current capital is also known as liquid capital.

d. Social Capital: These are social amenitiesSocial amenities, or public amenities, refer to places, buildings or infrastructural facilities which are to be shared and to become convergence spots for the local and surrounding communities. Examples include good... More such as good roads, railways, airways, electricity (power) security, and seaports which make a conducive environment for businesses to thrive.

Characteristics of Capital:

a. It is man-made.
b. It is wealth.
c. Capital can change form.
d. The reward of capital is interest.
e. Capital can depreciate in value.

Entrepreneurship:

The Entrepreneur creates the other factors, i.e. Land, labour and capital. He is the driving force behind any business. He combines other factors to produce the best result and if the business succeeds he reaps profit but if it fails, he incurs or suffers loss.

Characteristics of the Entrepreneur:

The characteristics of the entrepreneur include;

a. Risk bearer.
b. Organisation.
c. Decision-making.
d. Controls other factors of production.

Functions of the Entrepreneur:

i. Decision Making: The entrepreneur makes decisions during the production process.
ii. Provision of Capital: The entrepreneur is responsible for the provision of capital for the business.
iii. Risk Bearing: The entrepreneur bears the risk associated with the business.
iv. Efficient Management: The entrepreneur ensures efficient management of the business by combining the other factors of production in order to maximize production and profits.
v. He determines the Pricing Policy: The entrepreneur determines the pricing of the product.
vi. Organising Research Activities: He carries out research in order to increase the efficiency and productivity of the business.