By:

Ruchika Saxena
IV yr. – ECE
10EJTEC091
PRODUCTION

Production means creation or

addition of utilities. Any activity
that makes a product more
useful is called production.
FACTORS OF PRODUCTION
 Production is process of transformation of
inputs into outputs. Anything that renders
a help in the process of production is
called factor of production
 In the words of Prof. J.K Mehta,
“Anything that assists production is called
factors of production.’’
 In economics, factors of
production are the inputs to the
production process. Finished goods are
the output.
PRODUCTION FUNCTION

Input determines the quantity of

output Input is the starting point and
output is the end point of production
process and such input-output
relationship is called a production
function
MAIN FACTORS OF
PRODUCTION

The factors of production may be neutral or manmade.

Modern economists have grouped as:
(i)Land
(ii)Labour
(iii)Capital
(iv)Entrepreneur
(v)Management
FIRST FACTOR - Land

Land is not created by mankind but it

is a gift of nature. So, it is called as
natural factor of production. It is
also called as original or primary
factor of production. Normally, land
means surface of earth.
It includes following natural
resources:-

 On the surface
 e.g. soil, agricultural land, etc.
 Below the surface
 e.g. mineral resources, rocks, ground
water, etc.
 Above the surface
 e.g. climate, rain, space monitoring, etc.
Characteristics
 Land is a free gift of nature
Land is a free gift of nature to mankind. It is not a man-made
factor but is a natural factor.
 Land is a primary factor of production
Though all factors are required for production, land puts
foundation for production process. Starting point of production
process is an acquisition of land. So, it is a primary factor.
 Land has perfectly inelastic supply
From society's point of view, supply of land is perfectly inelastic
i.e. fixed in quantity. Neither it can be increased nor decreased.
Simply, you can not change size of the earth. But from
individual point of view, its supply is relatively elastic.
 Land is a passive factor.
Land itself doesn't produce anything alone. It is a passive
factor. It needs help of Labour, Capital, Entrepreneur, etc. Like
labour and entrepreneur, it doesn't work on its own initiative.
So it is a passive factor.
 Land may have diminishing returns
Here, return means quantity of crops. By using fertility of land
with the help of capital and labour continuously, returns gets
diminished because of reduction in fertility.
 Land has a derived demand.
Demand for agricultural goods is a direct demand and for
producing such goods, land is indirectly demanded. So, as a
factor, land has a derived demand from consumer's point of
view.
o Land is perfectly immobile
Mobility means ability to move. Movement of land from one
place to another is impossible. Thus, physically, land is
perfectly immobile. But it has certain occupational mobility
because it can be used for variety of occupations, like
agricultural use or for construction of houses.
 Land has a site or location value
Every piece of land has its certain site or location value. Such
value depends upon quality of its location. Land near to
sources of raw materials and other infrastructure facilities
always enjoy high site value. Here accessibility of land plays an
important role.
SECOND FACTOR- LABOUR

Labour as factor of production is any human

effort used productively (with an output of goods or
services) for which payment is made. Honorary work
& work for enjoyment are excluded.
CHACTERSTICS
 Labourer sells his services not himself: If labourer is
employed means an employer only pays in the form of
wages on account of services received from the labourer.
Thus labourer is only selling his services not himself.
 Labour is more perishable than other
commodity: If time passes, it lapses forever. Therefore
a day lost which out work means the days work gone for
ever. That is why many times workers have to accept
lower wages rather than earn nothing.
Labourer has not the same power of bargaining as their
employers. This is because labour cannot be stored up
and labourers are poor and ignorant.
 Man, not a machine: A labourer differs from machine. He
can not render services like machine. After all labourer is
man and he has feelings and likings. If good surrounding,
health, recreation is provided, he can work efficiently
otherwise he will not work efficiently.
 Less mobile: Generally labourer does not want to leave his
home. It is therefore labour is such less mobile a compared
to other factors.
 Supply Independent of its demand: The supply of
labour is always independent of its demand and cannot be
easily and quickly increased or decreased. If supply of
labour is surplus, their numbers can be reduced only by a
painful process of starvation. But when sudden increase
demand for labour, as during war, wages will rise but supply
cannot be quickly increased.
 Labourer differs in efficiency: Like machinery every
worker can not render same quantum of work labourer they
very inefficiency and therefore wages differ from labourer
to labourer.
THIRD FACTOR-CAPITAL
Capital has been as that part of person’s wealth, other than
land, which yields an income or which aids in the
production of further wealth.
Characteristics
1)Capital is manmade factor
of production.
2) It involves time element.
3) Capital may be fixed: i.e.
it is durable use pre use
producer goods
e.g. machinery, well in
agriculture.
FOURTH FACTOR -
ENTREPRENEUR

 The fourth factor of production is entrepreneurship.

 An entrepreneur is a person who combines the other
factors of production – land, labour, and capital – to earn
a profit.
 The most successful entrepreneurs
are innovators who find new ways produce
goods and services or who develop new
goods and services to bring to market.
Classification of Entrepreneur

A. Based on functional characteristics

 Innovative entrepreneur: Such entrepreneurs introduce new goods or new

methods of production or discover new markets or reorganize the enterprise.
EX: P&G-new product, new ways of product, new markets and reorganise the
enterprise.
 Imitative or adoptive entrepreneur: Such entrepreneurs don’t innovate,they
copy technology or technique of others.
EX: Chinese mobiles.
 Fabian entrepreneur: Such entrepreneur display grates situation and scepticism
in experimenting with any change in their enterprise. They change only when
there is a serious threat to the very existence of the enterprise. Being Reluctant to
face risk, they continuously follow the foot steps of their predecessors.
 Drone entrepreneurs: Such entrepreneurs are characterised by a diehard
conservatism and may even be prepared to suffer the losses. These entrepreneur
are unwilling to make any change in the production system, even if the system
causes losses repeatedly.
EX: Acc. To MC Kinsey in 2015, 110-130 million people will be unemployed out of
which 90-100 million people will be Fresher.
B. Based on development
angle

 Prime mover: This entrepreneur sets in motion a powerful

sequence of development expansion and diversification of
business.
EX: Ambani
 Manager: such an entrepreneur doesn’t initiate expansion
and its content in just staying in business.
 Minor innovator: This entrepreneur contributes to
economic progress by finding better use for existing
resources.
EX: minimum wastage maximum production.
 Satellite: This entrepreneur assumes a suppliers role and
slowly move towards a productive enterprise.
 Local trading: such entrepreneur limits his enterprise to
the local market.
C. Based on entrepreneurs
business

 Manufacturing
 Wholesaling
 Retailing
 Service
D. Based on personality traits
 The improver: They have unwavering to run these businesses
with high integrity and ethics.
 The advisor: “Customer is right and we must do everything to
please him” because company is built by advisors and advisors
become customer focused.
 The superstar: All depends upon the charisma and on the high
energy of the superstar CEO.
EX: Richard Branson (400 co’s/Virgin coin), Larry Page (Google),
Lt. Steve Jobs (Apple), Ratan Tata (Tata sons).
 The artists: Are highly creative type, very conscious about
business. If feedback is constructive i.e. positive than also lets go
with negative self-image.
EX: Aamir Khan, Michael Dell (Dell), MC Cormich (EMI).
 The visionary: Too focused on dreams with little focused on
reality.
EX: Bill Gates (Microsoft), Kishore Biyani (Future Group), Warren
Buffet (Berkshire Hathaway), Sam Walton (Walmart).
 The analyst: More focused on fixing problems in a
systematic way.
EX: Gordon Hore (Intel), Rana Kapur (Yes Bank), Gautam
Adani (Adani Groups)
 The fireball: A business owned and operated by a fireball
is full of life, energy and optimism. They have “A get it
done attitude in a playful manner”.
EX: Malcolm Forbes – Forbes magazine
 The hero: Have an incredible will and ability to lead the
world and your business through challenges.
 The healer: They provide nurturing harmony to their
business, they have uncanny abilities to survive and
persists inner calm.
EX: Dr. Bindeshwar Pathak (Sulabh International), Kumar
Manglam Birla (Son of L.M Birla).
 The Opportunistic: take advantage of opportunities as
they occur.
EX: Mark Zuckerberg
 FIFTH FACTOR- MANAGEMENT

 Management in all business and organizational activities

is the act of getting people together to accomplish
desired goals and objectives using available resources
efficiently and effectively.
 Management comprises planning, organizing,
staffing, leading or directing,
and controlling an organization
(a group of one or more people or
entities) or effort for the purpose of accomplishing a
goal.
 Basic functions
Management operates through various functions, often
classified as planning, organizing, staffing,
leading/directing, controlling/monitoring and motivation.

 Planning: Deciding what needs to happen in the future

(today, next week, next month, next year, over the next
five years, etc.) and generating plans for action.
 Organizing: (Implementation)pattern of relationships
among workers, making optimum use of the resources
required to enable the successful carrying out of plans.
 Staffing: Job analysis, recruitment and hiring for
appropriate jobs.
 Leading/directing: Determining what must be done in a
situation and getting people to do it.
 Controlling/monitoring: Checking progress against
plans.
 Motivation: Motivation is also a kind of basic function of
management, because without motivation, employees
cannot work effectively. If motivation does not take place in
an organization, then employees may not contribute to the
other functions (which are usually set by top-level
management).
 Basic roles

 Interpersonal: roles that involve coordination and

interaction with employees
 Informational: roles that involve handling, sharing,
and analyzing information
 Decisional: roles that require decision-making.
Functions of Management
 1. Planning

 It is the basic function of management. It deals with

chalking out a future course of action & deciding in advance
the most appropriate course of actions for achievement of
pre-determined goals.
 Planning is deciding in advance - what to do, when to do &
how to do. It bridges the gap from where we are & where
we want to be”.
 A plan is a future course of actions. It is an exercise in
problem solving & decision making. Planning is
determination of courses of action to achieve desired goals.
 Thus, planning is a systematic thinking about ways &
means for accomplishment of pre-determined goals.
Planning is necessary to ensure proper utilization of human
& non-human resources.
2. Organizing
 It is the process of bringing together physical, financial and
human resources and developing productive relationship
amongst them for achievement of organizational goals.
 “To organize a business is to provide it with everything
useful or its functioning i.e. raw material, tools, capital and
personnel’s”.
 To organize a business involves determining & providing
human and non-human resources to the organizational
structure.
 Organizing as a process involves:
 Identification of activities.
 Classification of grouping of activities.
 Assignment of duties.
 Delegation of authority and creation of responsibility.
 Coordinating authority and responsibility
relationships.
 3. Directing

 It is that part of managerial function which actuates the

organizational methods to work efficiently for
achievement of organizational purposes.
 It is considered life-spark of the enterprise which sets it
in motion the action of people because planning,
organizing and staffing are the mere preparations for
doing the work.
 Direction is that inert-personnel aspect of management
which deals directly with influencing, guiding,
supervising, motivating sub-ordinate for the
achievement of organizational goals.
 4. Controlling
 It implies measurement of accomplishment against the
standards and correction of deviation if any to ensure
achievement of organizational goals.
 The purpose of controlling is to ensure that everything
occurs in conformities with the standards. An efficient
system of control helps to predict deviat
 “Controlling is the process of checking whether or not
proper progress is being made towards the objectives and
goals and acting if necessary, to correct any deviation”.ions
before they actually occur.
 Controlling has following steps:
1.Establishment of standard performance.
2.Measurement of actual performance.
3.Comparison of actual performance with the standards and
finding out deviation if any.
4.Corrective action.
CONCLUSION

The concept of the factor of production is of great

significance in modern economic study. It is used in the
theory of production in which the a range of combinations
of factors of production help in generating output when a
firm functions under rising or declining costs in the short-
run and when the proceeds to scale boosts or shrinks in the
long run. Moreover, we can also know how the least cost
combination of factors can be attained by a firm.
THANK YOU….