What is a factor of production? Definition
Factors of production are the limited resources needed to create goods and services, including land, labor, capital, and entrepreneurial skills.
In business terminology, this phrase also describes a resource that is used to create a product or service.
Factors of production are divided into:
- labor resources, or labor;
- investment resources, or capital;
- natural resources, or land;
- entrepreneurial talent, or entrepreneurial abilities;
-Information.
 

Main factors of production
Resources of production, or factors of production, are labor, land, capital, entrepreneurial ability, and information that are necessary to create economic goods and ensure the production of goods and services demanded by society.

Factors that are used in the production process include:

Labor is a purposeful human activity to create economic goods, which results from the use of both mental and physical abilities of an individual.
Capital or investment resources represent the accumulated stock of funds necessary for the production of something. This includes both money, securities, and so on, that is, what is used to purchase elements of production, and production resources already created by human hands, such as machines, buildings, and so on.
Land as a factor of production includes all kinds of natural resources used to create goods and services, such as forests, agricultural land, and minerals. This factor is important for the economy, as it provides the basis for production and satisfaction of the needs of society.
 

Additional Factors of Production
Entrepreneurial Talent
This includes the ability of a person:
- to organize the process;
- to combine all the necessary factors of production into a system;
- make decisions within the framework of doing business;
- take the risk of managing money, time, labor and business reputation;
- to be an innovator, that is, to introduce new technologies, new products, methods of organizing production.
Information is one of the key and "youngest" economic resources of our time. The importance of information is growing every year, and knowledge trading has turned into a profitable business. The main difference from physical assets is that information is easy to replicate and it is possible to create an unlimited number of copies. Thus, once created, intellectual value can be profitable for decades.
 

Features of factors of production
In the vast majority of cases, resources are not free (require certain costs, financial or physical) and can be interchangeable.
 

Use of factors of production
The resources used to produce goods and services are called factors of production: labor, land, capital, and entrepreneurship. These factors are a necessary condition for the creation of economic wealth in any industry, ensuring the production of goods and services necessary for society. Factors of production as a whole are the basis for business, and in themselves they are a source of a certain income. This is called factor income, that is, income from the use of resources. Examples of factor incomes: labor — wages; land — rent; capital — interest; entrepreneurial skills – profit.

Labor as a factor of production includes the physical and mental efforts of workers aimed at creating goods and services, as well as the skills, qualifications and experience that they bring to the production process to improve the efficiency and quality of products. Entrepreneurial skills, such as resource management, risk-taking, innovation, and business organization, are aimed at creating and developing goods and services. Land as factor income is natural resources such as land, water, forests and minerals that are used to create goods and services, playing a key role in ensuring economic growth and development.
 

System of Factors of Production
The acquisition of such resources by companies is carried out in the markets of production factors.
When making an acquisition decision regarding the amount of resource, the company proceeds from how it will affect profits. That is, when determining the optimal amount of resource, the company will compare the additional income from the sale of products produced when using the additional amount of the resource with the cost of purchasing this additional amount of the resource. From this it is concluded that the demand for factors of production is derived from the demand in the market of finished products and is presented by the manufacturing firm.
- Resource prices determine the income of owners in the form of wages, interest, rent, or entrepreneurial profit.
- Prices regulate their distribution between different sectors of the economy.
- Prices for resources determine the production costs of the buying firm.
The condition of demand for factors of production is derived from the demand in the market of finished products, and it is presented by the manufacturing company.
 

The Problem or Limitation of Factors of Production
The main problem is related to the insufficiency and limitation of the economic resources at the disposal of society to satisfy all economic needs.
Factors of production are relatively limited: land is determined by the geographical location of the country, the presence or absence of natural resources, and their replenishment.
The physical and mental abilities of workers engaged in a particular production also have limits.
Limited investment resources are expressed in a certain amount of equipment, machines, structures that were produced earlier in the production process.
Entrepreneurial qualities are limited by the personal qualities of people.
The number of factors available is constantly growing, but economists have come to the conclusion that the needs of humanity always grow faster than the opportunities to meet them.