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Four Factors Of Production

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INDIVIDUAL ASSIGNMENT
Q1. What is meant by the term resources? What are the four factors of production and explain the factors incomes associated with each factor of production (20 marks)
a) Resources means being able to produce something that can be a good or service. For e.g. the sun, trees, natural gas, materials, staff.
b) The four factors of production are land, labor, capital and entrepreneurship.
(i) Land- is considered the natural resources or raw materials we find on the earths surface to produce a good or service. Such as forest, coal, copper, oil. The reward earned b land resources is rent.
(ii) Labor- is the time and effort contributed by employees to the production of goods and services. For e.g. the waitress who brings your food
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delivery vans, computers. Money is not capital but it is used to buy the capital to produce the good or services but it is not capital it self. The reward earned by owners of capital resources is interest.
Entrepreneurship- is the man willing to take a risk by combining the other factors of production-land, labor and capital to produce goods or services. The payment to entrepreneurship is profit.

Q2. What is the difference between transfer earnings and economic rent? Explain with the use of an example (10marks)

A) Transfer earnings – is the least reward or payment that a laborer factor would earn as its best paid alternative choice. For e.g. a sales clerk gets pay a minimum of $15 an hour. If she was to receive a less than the minimum wage, she most likely wouldn’t want to work for that.
B) Economic rent- is the debate between what the laborer is earning and what he could be earning in its best alternative employment. For e.g. if an employee would be willing to work for at least $700 a week but instead makes $1000 a week then his economic rent would be
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Technical economies- is found when a cost of a product does not match the size of the product for e.g doubling the price of a crate does not mean the price should increase.
2. Purchasing economies- when huge firms achieve the privilege of buying bulk to bulk to obtain purchasing discounts. E.g. a massive supermarket like Price Smart can buy large cases of cereal in much greater quantities than a small quantities of a small grocery or shop.
3. Administrative economies- arise because the same people can usually manage with massive output, so the moderate administrative cost decreases when production increases. These Large firms can employ technicians, which would assist in the increase the firm’s productivity.
4. Marketing economies- these large firms budget cost is lesser for the large firms when dealing with the promotion and advertising, the cost, this enjoyment cant e experienced by small firms. Also selling the good they would get huge discounts when comes to the purchase of natural resources.

d. LRAC: is the curve of a firm that illustrates their lowest and highest average total cost by dividing the total production costs by the quantity of goods produced in the long run. Into consideration that the variable or factors of production can be changed within a given

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