Factors of Production

i) Land, ii) Labour (Primary Factor)

iii) Capital,   iv) Organization or entrepreneur (Secondary factor)

These factors are called inputs or resources. Every kind of produce is due to them.

Land

Land is the basic resource or factor of production without which nothing can be produced. Land in economic mean “Natural resource in the command of human being for use in the production of wealth”. It does not mean surface of the land, it means natural resources, which are found under and above the surface of earth. Such as soil, mineral, forest, mountain, and desert. 

The countries, which have an abundance of these resources, are developing fast whereas the countries which are short of these resources are still underdeveloped. 

Land has some special characteristic

(i)   It is free gift of nature

(ii) Its total supply in fixed.

(iii) It lacks geographical mobility.

(iv) Different characteristics: i.e. (quality) Not all land is suitable for production Some are forest, some are useful for agriculture crops, some rangeland, some are deserts etc.

Labour

Nothing can be produced without people. In general, by labour we mean work done. But in economics labour means “any mental or physical work which is done for the sake of reward is called labour”. Such as work of mason, carpenter, barber wilder etc are called labour. 

They do physical labour for rewards. Besides this doctor, engineer etc are also labourers, they do mental labour.

Characteristic of labour

(i) Un identical labour. There are different categories of labour for example teaching is a profession as it is a form of labour and a factory worker is another form of labour. One do mental labour and other do physical labour.

(ii). Labour cannot be stored. A labour sitting idle doing nothing is wasting time and wasting his own resources.

(iii). Rapid change in labour is impossible. Supply of labour depends on population. It cannot just increase or neither can decrease. It takes sometimes for change in the supply of labour to occur.

(iv). Inverse co-relation of supply of labour and wage rate. Increase in supply of labour results in reduction of wages and vice versa.

Capital

Capital consists of all those man-made resources which help in the production process and available in the form of building, machinery, roads, tools, types of equipment and materials. 

Capital is that part of wealth, which can be used, for further production of wealth. If a person saves a part of his income and lends its to get interest, the amount loaned will be called capital. 

Capital is passive factor:- In forestry or any other sector, capital can produce something only when its combined with labour (A bus without driver cannot work).

Capital is Productive:- Capital helps in production. It raises productive capacity of labour. So capital is productive only when it is utilized in land leveling, raising nurseries, afforestation etc. It helps in further production.

Capital is the result of human labour :- capital is created by people. It is not a natural resource. It never happens that a building comes ups itself or a computer falls, from trees.  By raising forests it requires the services of human labour.

Capital is more mobile than other factors:- Land has no geographical mobility. Labour and organization have less mobility. But capital is easily transferred to a place where it is secure and expects a higher return.

Capital is created through saving and investment:- When all of the current income is not spent on consumer goods, a part is saved. By investing this saving, capital is created in the form of machines, equipment, building, raising nurseries, forests etc.

4. Organization or entrepreneur

Organization is the fourth factor of production. An organizer is an individual or a body of individuals who bring the other three factors together and makes production possible. The organizer is also called entrepreneur. It is the entrepreneur who hires other factors, combines them in proper proportion, supervises the work, purchases raw materials and sells finished goods. He is the owner of the productive unit (firm). 

Prof. Knight defines an entrepreneur, as “An entrepreneur is a person who performs the dual functions of risk-taking and control”. The entrepreneur takes risk by introducing both new products and new ways of making old products.

Theory of production or production function

Production of commodity requires the combined use of many factors such as land, labour, and capital etc. The relationship between the quantity of factor inputs and the quantity of resulting output is called production function. 

In other words “Production function is a technological relationship which shows the maximum amount of output attainable from various combination of factor inputs. 

It can be expressed as Q=f (a,b,c..n) Where Q. is quantity output while a,b,c…. n  are the different productive factor such as land, labor, capital etc.

Types of Production Function.

In process of production two situations may arise. In one situation, some inputs may vary, some may remain fixed while in the other, and all inputs may vary. Therefore, production function is classified as  1. Short term  P. function.      2. Long-term      P. Function.

When some inputs are variable and some are fixed, the P.function is known as “short term P.function”.

When all the inputs are variable the P.function is known as “long term P.function” because over a long period all inputs undergo some change or the other.

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