Factors of production
There are four factors of production that a business needs to be able to produce their products or provide their service. These are land, labour, capital and enterprise.
- Land - This includes the physical land where the business is located and also the natural resources that a business might need. This includes non-renewable resources such as gas and oil and renewable resources such as wind power. These are often scarce resources.
- Labour - This includes the staff needed by the business and the skills and qualifications they have.
- Capital - This is the machinery and equipment needed by the business to make the products or provide the service.
- Enterprise - This is the who takes a risk and creates the business using the other three factors of production.
Opportunity cost
An opportunity cost is something that is given up in order to do something else. For example this could be when a business must choose between two different office locations, they will face opportunity costs for the location they do not choose. Another example is if a business has £5,000 and has to choose between using the money for a new advertising campaign or more training for its staff, they must weigh up the opportunity costs of picking one option over the other.
