Definition, Purpose and 4 Factors of Production (Nature, Labor, Capital, Managerial)

The economy is very closely related to activities such as production. Production activities become a basic matter carried out by producers in their economic activities. For this reason, it is very important for those of us who study economics to understand what production is and what factors of production exist.

Chapter List 

Definition of Production

Understanding production is an activity carried out to add value to an item, so that it becomes a new item that is more useful. In this production process, the main key is the addition of the use value of an item. Adding value to this can include two things, namely:

  • Production that produces new goods and services. The new goods and services produced can be done by increasing the amount, changing the shape or enlarging the size.
  • Production by increasing or increasing the usefulness of an item becomes more useful. In this case, goods and services which can actually be utilized, are created again so that they can add value to their benefits, both in terms of quantity and quality.

This production can also include the production of goods and service production. Both, of course, have different characteristics of each. The output of the process of producing goods can be seen and felt because it has a physical form. Products such as clothing. We can touch and see the item.

As for service product output, it cannot be touched and benefits or results can only be felt. Examples of service products for example when we go on a walk with tour and travel services. In that journey, we can feel and enjoy the results without being able to take certain products. In the production of these services, the production process at the same time when consuming occurs simultaneously.

Production Purpose

In conducting production activities, of course there are certain production goals. Production objectives, including:

  1. Increase the number of items
  2. Producing higher quality goods and services
  3. Replace items that are worn out or damaged
  4. Get a profit value
  5. Meeting the needs of the domestic market for the needs of companies and households
  6. Meet the needs in accordance with the development of science and technology
  7. Meet the needs of the international market
  8. Increase welfare or prosperity

Production Factors

In the production activities to produce an item or service, factors needed are called factors of production. The existence of these factors of production is very important to be able to support the production process. Existing factors of production, including factors of natural production, factors of labor production, factors of capital production and factors of production managerial expertise.

The following is an explanation of each of the existing factors of production.

# 1 Natural Production Factor

Natural production factors are supporting factors of production activities available in nature. These factors include land, water, forest products, oceans, sea products, and so on. These goods can also provide added value to a product or service so that it can be called a factor of production.

As an illustration, when we produce rice, there is a role for natural production factors in the form of soil, rainwater, climate and so on. Fertile soil can help the growth of rice properly. Similarly, rainwater and climate can support the growth of rice so that it can be valued and utilized.

# 2 Factors of Labor Production

The factor of labor production is the factor of production in the form of human labor or what is commonly referred to as Human Resources (HR). This workforce plays an important role in carrying out various production activities.

The factors of labor production can be divided into two, namely labor based on quality and workforce based on the nature of the work, which can also be further divided into groups.

*  Labor based on quality , consisting of:

Educated workers who need formal education, such as lawyers, notaries, architects, doctors, teachers, and the like.

Skilled laborers who need certain experience and expertise, such as for example tailors, drivers, carpenters, mechanics and the like.

Rude laborers who do not need education or special experience or training, such as porters, pedicab drivers, gardeners, washers, and the like.

*  Labor based on the nature of the work , consisting of:

Physical labor which is a workforce by relying on energy, such as building coolies, porters, washers, janitors, and the like.

Spiritual labor which is labor by relying on thoughts and feelings, such as for example psychologists, artists, teachers and others like it.

The factors of labor production and also the factors of natural production are among the original factors of production. This is because by only using these two factors of production, humans can already produce goods to meet their daily needs even though they still produce little.

Along with the development of an age that makes science and technology more advanced, the needs of human life also develop. Humans are then demanded to be able to produce various things that can be used to better meet their needs, both in terms of quality and quantity.

Therefore, it takes factors of production other than the original factors of production, namely the factors of capital production and managerial expertise. These two factors of production are hereditary factors of production.

Also consider:  Understanding Microeconomics

# 3 Factors of Capital Production

Capital production factors play an important role in supporting the smooth production process. the factors of capital production can be classified based on their origin, shape and nature.

*  Capital according to its origin , consisting of:

Own capital, that is capital that comes from the company itself, such as for example, paid-in capital from the owner of the company

Foreign capital, capital originating from loans from other parties, who are not owners of the company.

*  Capital according to its form , consisting of:

Concrete or real capital in the form of machinery, production equipment, transportation equipment, and the like.

Abstract or intangible capital in the form of a good name, trademark, patent rights, and so forth.

*  Capital by its nature , consisting of:

Fixed capital, is capital that can be used repeatedly in a long time or more than once the production process. Examples of fixed capital such as buildings, production equipment, land, and others.

Current capital, is capital whose use can only be used once in the production process. For example, diesel, gasoline, yarn, raw materials for production processes, and others.

# 4 Production Factors Managerial Skills

The factor of production managerial expertise is the ability to manage and organize various factors of production so that the ongoing production process can run effectively and efficiently.

Factors of production management skills are also often referred to as a production factor of entrepreneurship or entrepreneurship . As an entrepreneurial production factor, there are several skills that need to be possessed, which include:

  • Managerial skill, which is an ability to organize all the factors of production that exist using appropriate methods so that maximum results can be obtained.
  • Technical skill, which is a technical expertise in the implementation of the production process so that the production process can run well.
  • Organizational skill, which is an expertise in leading various types of businesses or organizations so that the business or organization they lead can run well.


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