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1-6 Business and Economic Environments [CH 1

Figure 1.3 The Factors of Production to extract Entrepreneurship

INPUTS

Land
(Natural Resources) Entrepreneurship
Extracting Value
Labor Factor Payments
Rent
Capital Interest
Wages
Management
(Entrepreneurship) Profit

Factors of Production

land (natural resources) The private enterprise system requires inputs to produce goods and services for an
Resources that nature economy. Economists have termed these inputs the factors of production. Not all
provides including crude oil, enterprises require exactly the same (amounts of each) combination for factors of
natural gas, minerals, timber, production, as each enterprise has its own mix. There are four factors of production
fisheries, fiber and water. (resources): land (natural resources), labor, capital, and management to extract
entrepreneurship. These resources are economically limited scarce resources, though
labor
The human talent, skills and not necessarily finite, and with time renewable. As an example, your paycheck
competence available in a (capital) is limited to the amount you are payed, thus scarce, though renewable, each
nation as a resource of time you are paid for your work (labor), say weekly.
businesses. A farmer can grow a crop of corn on his land. The land is limited to his ownership
or access when it is rented land. He will grow one crop (also limited) and can regrow
capital
Funds that finance the another crop after the first has been harvested, with time and season permitting. The
operation of a business and scarcity of the corn crop is time limited and quantity limited to the season with the
the goods produced for the possibility of growing more than one crop in a year.
purpose of making other In contrast to your paycheck and the farmer, the Weyerhaeuser Company, an
types of goods and services. American timberland company which owns nearly 12,400,000 acres (19,400 sq mi;
2
50,000 km ) of timberlands in the U.S. and manages an additional 14,000,000 acres
2
Entrepreneurship (22,000 sq mi; 57,000 km ) timberlands under long-term licenses (rental agreements)
(Management): is the in Canada. Weyerhaeuser will harvest a tree (the scarce resource) for their timber
creation or extraction of industry, and replace the harvested tree through re-planting, and then wait 30 to 50
value. The management years before harvesting again; the time element to scarcity.
skills and risk taking to set up
and operate a business with The term "factors of production" is quite descriptive of the function these
the objective of making a "resources" perform.
profit after paying all Land (Natural Resources) refers to everything useful as a productive input in its
expenses. natural state, including agricultural land, building sites, forests, fisheries, and mineral
deposits in the land and water. Natural resources are basic resources required in any
economic system.

Labor refers to anyone who works in or for a firm, from the owner or company
president to the production manager, the sales representative, the assembly-line
worker, the farm laborer and packing-line worker.
Capital are those funds necessary to finance the operation of a business. These
funds are at risk and can be derived from investments, profits, or loans. They are used

to buy land, enter rental agreements, construct buildings or build factories and
processing plants, buy raw materials, and hire labor (workers).
Management (Entrepreneurship) is the taking of risks to create and operate a
business with the objective of making a profit. When defined as a person, the
entrepreneur is the risk taker in the private enterprise system; and risk needs to be

defined and understood as the opportunity to lose. Entrepreneurship is filled with
action, resulting in the creation and extraction of value. In some situations, the
entrepreneur actively manages the business giving direction, sometimes as a
delegated responsibility to an employee.

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