Describe the factors of production and show understanding of the economic problems
Answers
In Microeconomics or Production Economics,factors or inputs of production refers to the resources and assets used in the production of goods and services by firms or businesses in an economy.The main economic problem of firms or businesses is that of ensuring profit maximization by optimum utilization of factors/inputs of production.
Explanation:
The factors/inputs of production generally denotes the resources,assets and inputs used in the production process by any firm or company.Some common examples of factors of production are labor,physical inputs such as machinery and equipment,land,raw materials,intermediary goods and so forth.These all constitute essential resources and endowments that almost every firm or company requires to employ in the production of any good or service in concern.
Now,the major economic dilemma or problem of any firm is profit maximization or cost minimization through optimal usage of the factor inputs.In other words,how much of the factors or inputs should a firm hire or employ which will provide the profit maximizing or cost minimizing output or production level.In brief,the firm or company will hire or employ any factor input until the additional revenue generated from selling the marginal product of that particular factor/input(marginal revenue) is equal to the additional cost/expense incurred by the firm to hire or employ one more unit of that factor/input(marginal cost).Marginal productivity in this case,refers to the additional output generated by one unit of any factor/input.Now,at this point the firm's overall profit is maximized or overall cost is minimized.Any deviation from this rule would either lead to increase or decrease in marginal profit or even marginal loss.When marginal revenue is equal to marginal cost,the firms can achieve optimal level of factor/input combination that will generate the profit maximizing or cost minimizing output level.