DEMAND FOR FACTORS

OF PRODUCTION
KARAN
 Land – Rent

Labour – Wage
FACTORS OF
PRODUCTION
AND THEIR PAY Capital – Interest

Enterprise – Profit
• Factors of production that are
employed is influenced by the type of
product produced the productivity of
the factors and their cost
• Industries like automobile
manufacturing would be capital
intensive
• Industries like agriculture mining
would be labour intensive
• When factors of production are substitute, can be
replaced, fall in cost of one of them may result in
the change of combination of resources employed.
• If there is a fall in the price of capital goods, a firm
can replace the workers with machine
• When factors of production are complement, rise
in productivity or fall in cost of one factor of
production can lead increase the employment of
all factors of production
ALTERING FACTORS OF PRODUCTION

• A firm can alter its factor of production but some factor of production are easier to alter
than other
• In the short run a firm cannot expand, build new building as it will take some time to do
so, but the quantity of labour can be altered even in the short run
COMBINING FACTORS OF PRODUCTION

• It is very important for a firm to combine the factors of production at the right quantity
in order to get the highest productivity
No. of machine No. of workers Total output Output per worker
5 1 50 50
5 2 120 60
5 3 210 70
5 4 320 80
5 5 450 90
5 6 600 100
5 7 770 110

A firm uses different combination as shown in the table above, the firm would Output per worker= total output
no. of worker
decide which combination to use in order to achieve highest productivity and
the firm would choose the seventh combination as this combination would let
the firm achieve highest productivity
Labour Capital
Retail employees Planes
Pilot Trains
Truck drivers Truck

https://thenextweb.com/apple/2012/01/24/this-is-
how-apples-top-secret-product-development-
process-works/
DEMAND FOR CAPITAL GOODS

• Price of capital goods

• Price of other factor of production
• Profit levels
• Corporation tax
• Interest rates
• Confidence level
• Advances in technology
• In 1789, Samuel Slater improved textile manufacturing. Eli Whitney invented the cotton
gin in 1793. These made the United States a leader in clothing manufacturing
 DEMAND FOR LAND

• In agriculture, the most fertile land will high

in demand and would receive high rent
• City centre sites would be very high in
demand as it is in the centre of town and
can attract many customers
MOST FERTILE LAND

• United States
• India
• China
• Russia
• Brazil
CITY CENTRE SIT

• New York
• London
• Paris
• Tokyo
• Hong Kong