Engineering Economics and Management

Assignment-1

Q. What are different factors of production?

A. Factors of production is an economic term that describes the inputs that are
used in the production of goods or services in order to make an economic
profit.

The factors of production are-

1. Land
2. Labor
3. Capital
4. Entrepreneurship

Land
In Economics, the word ‘land’ is used not merely in the sense of the soil or
surface of the earth as is ordinarily understood. It stands for all nature, living
and lifeless. It includes all natural resources that we can get free from air,
water and land. It covers the land surface, whether level or mountainous.
Land as a factor of production is of immense importance. As has already been
pointed out, everything that we use can be traced ultimately to land. Land may
be rightly called the original source of all material wealth. The economic
prosperity of a country is closely linked with the richness of her natural
resources.

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Characteristics of land-
 Land is a free gift of nature.
 Land is limited in area.
 Land is not perishable/It is permanent.
 Land lacks mobility.
 Land is of infinite variety/ Land varies in quality.
 Land differs in location.

Labour
Labour includes both physical and mental work undertaken for some monetary
reward.
In this way, workers working in factories, services of doctors, advocates,
officers and teachers are all included in labour. Any physical or mental work
which is not undertaken for getting income, but simply to attain pleasure or
happiness, is not labour.

Characteristics of labour-
 The worker and his services go together.
 The worker sells only his services.
 Labor is perishable.
 The worker cannot separate himself from the services.
 Wages do not alone influence labour.
 Supply of labor is peculiar.
 Supply of labor changes slowly.
 Labor is mobile but labor mobility is low.

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Capital
Capital has been defined as that part of a person’s wealth, other than land,
which yields an income or which aids in the production of further wealth.

Constant or Fixed capital

Fixed capitals are the durable-use producer goods which are used in
production again and again till they wear out. Machinery, tools, railways,
tractors, factories, etc., are all fixed capital. Fixed capital does not mean fixed
in location.
Capital like plant, tractors and factories are called “fixed” because if money is
spent upon these durable-use goods it becomes “fixed” for a long period in
contrast with the money spent in purchasing raw materials which is released as
soon as the goods made with them are sold out.

Working capital
Working capital, on the other hand, includes the single-use producer goods like
raw materials, goods in process, and fuel. They are used up in a single act of
consumption. Moreover, money spent on them is fully recovered when goods
made with them are sold in the market.
Characteristics of Capital-
 Capital is man-made- it is not a gift of nature.
 Capital is not fixed in quantity and can be increased and decreased.
 Capital is perishable.
 Capital is mobile.
 Capital in each group is identical or homogeneous.

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Entrepreneurship
In the past production was carried on in the house of workers or in small
workshops. The worker in olden times himself possessed the tools he required
supplied the capital he wanted, owned his own land or house, and planned the
operation himself.
He was the landlord, the worker, the capitalist and the organizer al rolled in
one. But conditions of production and market have changed considerable
these days. Production is no more simple.
It is organized on a large scale and had become highly complex. Besides factors
of production are owned separately and sometime may even lie scattered.
A cotton textile mill in Coimbatore engages over 5000 workers who come from
all over Tamil Nadu and Kerala, Its capital is supplied by shareholders, spread
over the whole of India but also in other countries.
It becomes, necessary therefore for someone to bring all the factors
of production together, co-ordinate them, supervise and manage them.
Such a person, or often a group of persons known as the organizer or the
enterpriser of entrepreneur. “Entrepreneur” is a French Word which is now
commonly used byeconomists to refer to the person or persons who perform
the task of organizing and managing a business.

The functions of an entrepreneur are therefore-

 He decides about what he will produce, where he will produce and how
he will produce it.
 He coordiantes the work of the different factors of production.
 He anticipates the future demand and future prices.
 He introduces a new idea or a new commodity, a new process or some
new machinery.
 He busy raw material and sells the finished goods.
 He represents the business before the government or with
other enterprises.

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Q. Explain different types of markets with real time examples.
A. In market economies, there are a variety of different market systems that
exist, depending on the industry and the companies within that industry. It is
important for small business owners to understand what type of market
system they are operating in when making pricing and production decisions, or
when determining whether to enter or leave a particular industry.
Perfect Competition
Perfect competition is a market system characterized by many different buyers
and sellers. In the classic theoretical definition of perfect competition, there
are an infinite number of buyers and sellers. With so many market players, it is
impossible for any one participant to alter the prevailing price in the market. If
they attempt to do so, buyers and sellers have infinite alternatives to pursue.
Monopoly
A monopoly is the exact opposite form of market system as perfect
competition. In a pure monopoly, there is only one producer of a particular
good or service, and generally no reasonable substitute. In such a market
system, the monopolist is able to charge whatever price they wish due to the
absence of competition, but their overall revenue will be limited by the ability
or willingness of customers to pay their price.
Oligopoly
An oligopoly is similar in many ways to a monopoly. The primary difference is
that rather than having only one producer of a good or service, there are a
handful of producers, or at least a handful of producers that make up a
dominant majority of the production in the market system. While oligopolists
do not have the same pricing power as monopolists, it is possible, without
diligent government regulation, that oligopolists will collude with one another
to set prices in the same way a monopolist would.
Monopolistic Competition
Monopolistic competition is a type of market system combining elements of a
monopoly and perfect competition. Like a perfectly competitive market
system, there are numerous competitors in the market. The difference is that
each competitor is sufficiently differentiated from the others that some can
charge greater prices than a perfectly competitive firm. An example of
monopolistic competition is the market for music. While there are many
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artists, each artist is different and is not perfectly substitutible with another
artist.

Monopsony
Market systems are not only differentiated according to the number of
suppliers in the market. They may also be differentiated according to the
number of buyers. Whereas a perfectly competitive market theoretically has
an infinite number of buyers and sellers, a monopsony has only one buyer for a
particular good or service, giving that buyer significant power in determining
the price of the products produced.