Question

What are the four factors of production? If the amount of one of the factors of production goes up, does that change the amount a firm can produce?

Answer 1

Part 1) Economists divide the factors of production into four categories: land, labor, capital, and entrepreneurship.

The first factor of production is land, but this includes any natural resource used to produce goods and services. This includes not just land, but anything that comes from the land.

The second factor of production is labor. Labor is the effort that people contribute to the production of goods and services.

The third factor of production is capital. Think of capital as the machinery, tools and buildings humans use to produce goods and services.

The fourth factor of production is entrepreneurship. An entrepreneur is a person who combines the other factors of production - land, labor, and capital - to earn a profit.

part 2) It depends on the return to scale.

If production function is constant return to scale then if any factor increases by 2 units,output also increases by 2 units.

If production function is increasing return to scale then if any factor increases by 2 units,output increases by more than 2 units.

If production function is decreasing return to scale then if any factor increases by 2 units,output increases by less than 2 units.