Labour and capital - Methods of production - National 5 Business management Revision - BBC Bitesize (2024)

FAQs

What are the factors of production in NAT 5 business? ›

These are land, labour, capital and enterprise.

The term "capital intensive" refers to business processes or industries that require large amounts of investment to produce a good or service. As a result, these businesses have a high percentage of fixed assets, such as property, plant, and equipment (PP&E).

Labour intensive is when products are mainly produced by human workers. Machines and special tools may be used too, but overall it requires human creativity and effort to produce the product.

Capital intensive production refers to production methods that require a high level of investment in capital equipment and technology, rather than labor. Here are some examples: Automated assembly lines in factories, which use robots and machines to assemble products with minimal human intervention.

Five factors of production are land, labor, capital, entrepreneurship and knowledge. Land: Land is the natural resource on which we build our buildings and cities. It can be used for farming and forestry.

One could argue that land is most important, since all physical products originate from the resources it provides. However, professional services and software are increasingly important in the modern economy. Therefore, you could argue that labor is the most crucial factor of production.

The production operations of any business combine two factor inputs: Labour – i.e. management, employees (full-time, part-time, temporary etc) Capital – i.e. plant & machinery, IT systems, buildings, vehicles, offices.

In labour intensive techniques more of labour and less of capital (plant and machinery) is used. In capital intensive techniques more of capital (modern plants and machines) is used and less of labour. Degree of capital intensive technique depends on the ratio of labour to capital.

Fruit picking can be done using a labour intensive technique when the farm owner employs a large amount of seasonal workers to pick up the fruit. These days, fruit picking can also be done using machinery, which would be a capital intensive technique.

Capital-intensive industries include automotive, airline, oil and gas, mining, manufacturing, and real estate. The companies in all of these industries have to spend money on expensive assets such as factories or airplanes, and they have to spend more money to maintain them and, eventually, replace them.

How to choose a production method? ›

Businesses choose the most suitable production method based on factors such as cost, quality, flexibility, and the nature of the product. The choice of a production method is a critical decision for any business.

In conclusion, capital-intensive production can offer a range of advantages for businesses, including increased efficiency, higher output, reduced labour costs, and improved product quality.

Labor refers to the effort expended by an individual to bring a product or service to the market. Again, it can take on various forms. For example, the construction worker at a hotel site is part of the labor, as is the waiter who serves guests or the receptionist who enrolls them into the hotel.

Division of labor is an important economic concept that refers to the separation of tasks in a production process. Division of work can also be referred to as specialization, where workers are assigned smaller, manageable tasks that contribute to the larger main activity.

Some examples of labor economics include market analysis of teacher salaries, the imbalance between supply and demand for IT workers, the aging population's effect on wages and the labor force, and the impact of automation on employment levels.

Economists define four factors of production: land, labor, capital and entrepreneurship. These can be considered the building blocks of an economy.

The 4 Factors of Production

There are four factors of production—land, labor, capital, and entrepreneurship.

Factors of production are resources that are the building blocks of the economy; they are what people use to produce goods and services. Economists divide the factors of production into four categories: land, labor, capital, and entrepreneurship.