Types of Factor-Factor Relationship: Many types of production surfaces are possible depending upon the underlying production function. The shapes of the. Factors of production are the resources used to produce goods and services. Economists divide the factors of production into four categories: land, labor, capital. AN ANALYSIS OF FACTOR PRODUCT RELATIONSHIP. IN PRAWN FARMING-A PRODUCTION FUNCTION APPROACH. DISSERTATION SUBMITTED BY.
Fixed capital — This includes machinery, factories, equipment, new technology, buildings, computers, and other goods that are designed to increase the productive potential of the economy for future years. Nowadays, many consider computer software to be a form of fixed capital and it is counted as such in the National Income and Product Accounts of the United States and other countries.
Factors of production - Wikipedia
This type of capital does not change due to the production of the good. Working capital — This includes the stocks of finished and semi-finished goods that will be economically consumed in the near future or will be made into a finished consumer good in the near future. These are often called inventory. The phrase "working capital" has also been used to refer to liquid assets money needed for immediate expenses linked to the production process to pay salaries, invoices, taxes, interests Either way, the amount or nature of this type of capital usually changes during the production process.
Financial capital — This is simply the amount of money the initiator of the business has invested in it. Technological progress — For over a century, economists have known that capital and labor do not account for all economic growth.
This is reflected in total factor productivity and the Solow residual used in economic models called production functions that account for the contributions of capital and labor, yet have some unexplained contributor which is commonly called technological progress. Ayres and Warr present time series of the efficiency of primary energy exergy conversion into useful work for the US, UK, Austria and Japan revealing dramatic improvements in model accuracy.
With useful work as a factor of production they are able to reproduce historical rates of economic growth with considerable precision and without recourse to exogenous and unexplained technological progress, thereby overcoming the major flaw of the Solow Theory of economic growth. It integrates, amongst other things, the first and second laws of thermodynamics see: Laws of thermodynamics to formulate more realistic economic systems that adhere to fundamental physical limitations.
In addition to the neoclassical focus on efficient allocation, ecological economics emphasizes sustainability of scale and just distribution. Ecological economics also differ from neoclassical theories in its definitions of factors of production, replacing them with the following: The material from which products are produced.
Matter can be recycled or reused through refining or reforming, but it cannot be created or destroyed, placing an upper limit on the amount of material that can be withdrawn and used. Consequently, the total amount of available matter is fixed, and once all the available matter is used, nothing more can be produced without recycling or reusing matter from prior products.
The physical but non-material inputs of production. We can place different forms of energy on a scale of utility depending on how useful it is for creating a product. Due to the law of entropy, energy tends to decrease in utility over time.
In the process, however, electricity is converted to heat, a less useful form of energy. Like matter, energy can neither be created nor destroyed and thus there is also an upper limit to the total amount usable energy.
Factors of production
A factor that incorporates the knowledge, creativity, and efficiency of how goods are created - the better the design, the more efficient and beneficial the creation is.
Designs are usually improvements on their predecessors since our store of accumulated knowledge grows with time. One possible neoclassical analogue of design intelligence is technological progress. Integral to ecological economics is the following notion: This provides the basis for a core tenet of ecological economics, namely that infinite growth is impossible. Clark saw the co-ordinating function in production and distribution as being served by entrepreneurs ; Frank Knight introduced managers who co-ordinate using their own money financial capital and the financial capital of others.
In contrast, many economists today consider " human capital " skills and education as the fourth factor of production, with entrepreneurship as a form of human capital. Yet others refer to intellectual capital.
More recently, many have begun to see "social capital" as a factor, as contributing to production of goods and services. Entrepreneurship[ edit ] Consider entrepreneurship as a factor of production, leaving debate aside. In markets, entrepreneurs combine the other factors of production, land, labor, and capital, to make a profit.
Often these entrepreneurs are seen as innovators, developing new ways to produce and new products. In a planned economycentral planners decide how land, labor, and capital should be used to provide for maximum benefit for all citizens.
Of course, just as with market entrepreneurs, the benefits may mostly accrue to the entrepreneurs themselves. Wright Mills refers to "new entrepreneurs" who work within and between corporate and government bureaucracies in new and different ways.
Much controversy rages about the benefits produced by entrepreneurship. But the real issue is about how well institutions they operate in markets, planning, bureaucracies, government serve the public. This concerns such issues as the relative importance of market failure and government failure. In the book Accounting of Ideas, "intequity", a neologismis abstracted from equity to add a newly researched production factor of the capitalist system.
Equity, which is regarded as part of capital, was divided into equity and intequity. How much of the cash should be used to buy and apply fertilizer and how much of the cash should be used to operate the irrigation system? Example 2 -- a business is manufacturing a consumer product output in a manufacturing facility fixed input with a limited amount of cash again that can be used to buy steel or to hire workers variable inputs.
How much of the cash should be spent on steel and how much of the cash should be spent on labor? Using the second example, if the business spends most of the cash on steel and only a little on labor, there may not be enough workers so the steel remains unused at the end of the production period. Alternatively, if the cash is spent on workers and not enough steel, the workers may find themselves standing around because there is no steel with which to manufacture the products.
Another alternative is to buy plenty of steel and hire plenty of workers, but two matters limit this strategy -- the size of the facility and the amount of cash. These two matters are the fixed inputs and cannot be altered during the production period. These formulas focuses the manager's attention on the relationship between the quantity of output produced MPP and the cost of the variable input Px. Due to the reality of diminishing marginal productivity, the MPP for both inputs changes as more variable input is used.
The manager does not want to use so much of one input and so little of the other input that neither of the levels of use is close to being the profit maximizing combination of inputs. However, the manager also needs to consider the relative cost of each variable input.