What are the Factors of Production? What
are the Characteristics of Factors of Production?
The factors of production may be
defined as resources which help the firms to produce goods or services.
In other words, the resources
required to produce a given product are called factors of production.
Production is done by combining the
various factors of production. Land, labor, capital and organization (or
entrepreneurship) are the factors of production (according to Marshall).
The characteristics of factors of
production are described below:
1. The ownership of the factors of
production is vested in the households.
2. There is a basic distinction
between factors of production and factor services. It is these factor services,
which are combined in the process of production.
3. The different units of a factor
of production are not homogeneous. For example, different plots of land have
different level of fertility. Similarly laborers differ in efficiency.
4. Factors of production are
complementary. This means their co-operation or combination is necessary for
production.
5. There is some degree of substitutability
between factors of production. For example, labour can be substituted for
capital to a certain extent.