Question

Class, there are four limited resources: land, labor, capital, and entrepreneurial ability.  Given the role of the entrepreneur is he/she crucial to the production process?  Provide an example.

Answer 1

Resources are limited in a particular time span – a firm can’t acquire another land in the short-run because of acquiring land by other firms, labor can’t be increased because of non-availability (they may be in other jobs), and there may not be abandoned capital in hand because getting finance in the short-run may be a problem.

An entrepreneur manages these issues and uses these resources in a way so that the maximum possible outcomes may be achieved in production process – waste could be the minimum. This is the entrepreneur who bears risk, applies innovation, and formulates effectiveness in search of the best return. Therefore, he/she is crucial in production activity.

Example: Suppose there are three processes in production – Click, drop, and final. The flow of work is click to drop to final. More often the drop and final departments are facing ideal time (labors are waiting for work) these days, because there is delay in work in click department. The entrepreneur looks into the matter and found that the channel of distribution is poor in this department; in order to improve it he innovated a new route of distribution so that the suppliers supply their materials directly to this department and then it should be reconciled by stores.