six factors of production
information
To produce goods and services in a competitive global market, businesses require more information about
new technology
customers
competition
political conditions
sources of supply
Accurate and usable information reduces a business’ risk and can enhance its profitability.
Labour
Labour includes all of the physical and mental (cognitive) work needed to produce goods and services. Labour is expensive so most businesses seek ways to save on labour costs.
Businesses now automate and consolidate to save on labour costs. Automation means that many tasks are performed by more than one person using machines. Consolidation occurs when many small manufacturing sites close down and are centralized into one large site.
Outsourcing, the hiring of another company to perform tasks for any company, is another cost saving business option.
Management
In larger companies, higher-level managers and/or the board of directors make decisions regarding profit distribution. In a smaller business, a single business manager or owner may make all of the business decisions.
Management consists of the people who run the business and control or direct the factors of production (natural resources, raw materials, labour, capital, information, and so on). Management also allocates company resources and makes decisions that affect the day-to-day and long-term operations of the business.
capital
Capital is the money invested in the business and is often referred to as monetary capital. Capital can be transformed into other items to run the business such as a new truck. This type of capital is called liquid.
Some capital such as buildings or equipment are non-liquid. It is part of the business operations, and cannot be converted into liquid capital easily. These items are called capital goods.
Intellectual property, the ideas or the talent of a business’ workforce, is a non-tangible form of capital.
Raw materials
Two Main Types of Raw Materials
Two Main Types of Raw Materials
Ingredients ― raw materials that are combined or converted and become a part of the finished product.
Supplies ― raw materials that do not become a part of the finished product, but are used in the product creation process.
Raw materials are any goods used in the manufacturing of other goods.
Natural resources
logging and forestry
fuel and energy
water
mining
fishing and trapping
Agriculture
