What are factors that affect production?

By Deepak Palasamudram2 min read · Posted Jul 18, 2023


Production is a vital aspect of any business, as it involves creating and manufacturing products. This process includes four key components: land, labor, capital, and entrepreneurship. In this article, we will go more in-depth about each of these factors to gain a better understanding of how these factors are involved.


Land plays a crucial role in production, as it consists of natural resources essential for manufacturing. These natural resources include common materials such as oil, water, and wood. Natural resources can be categorized into two types: renewable and non-renewable. Renewable resources, such as water, solar, and wind energy, and agricultural produce, like vegetation, can be reused. On the other hand, non-renewable resources, like oil and coal, can become depleted. However, both types of resources are utilized in the production process.

Apart from its natural resources, the land is also utilized for various other production purposes, ranging from agriculture to industrial spaces such as factories.


Labor represents the human effort invested in production and is, of course, a necessary factor for business functioning. Human labor includes both physical and mental work contributed by individuals to transform raw materials and inputs into finished goods or services. Labor activities include operating machinery, assembling products, providing services, and even non-physical products such as coding and software development.

Labor productivity is measured by the amount of work an individual can accomplish within a given time, typically calculated as work per hour. Labor is heterogeneous, meaning its effectiveness varies based on the quality and efficiency of individual workers. The skillful utilization of labor is pivotal in achieving optimal production outcomes.


In the context of production, capital refers to the money used for acquiring the materials necessary for manufacturing. This includes investments in machinery, computers, buildings, vehicles, and other essential items required for production. For example, the clothing industry relies on capital for sewing machines and other tools necessary for product creation. Additionally, capital investment is necessary for establishing factories where production takes place.

Unlike raw materials (not capital goods), capital goods are fixed assets and gradually lose value over time as the products get older. Capital is also mobile, capable of being exported to different locations.


Entrepreneurship is the combination of land, labor, and capital. Entrepreneurs are the ones who combine these factors, as they are the ones who take risk, make decisions, and present leadership throughout the business and production process.

Entrepreneurs are responsible for finding opportunities in the market, developing business ideas, and mobilizing the necessary resources to turn those ideas into a business. They bring innovation and creativity to the production process by introducing new products, improving existing ones, or finding better ways to produce and deliver goods and services.


The four key factors of production: land, labor, capital, and entrepreneurship, will maximize the efficiency of your production. Think about each of these factors before making production plans and decisions for your business.


iStock - Header Image


Corporate Finance Institute

U.S. News

About The Author

Deepak Palasamudram

Total Views
Total Likes
Total Shares

Hello, I am Deepak, a high school student and an Article Writer for Pitch Labs. Along with my love of writing and teaching others, I am passionate about entrepreneurship, finance, and coding. I plan to delve more into these subjects in the future.

See more posts by Deepak Palasamudram



Join Our Community

Looking for something else? Get your questions answered in our free online learning community!

Entrepreneurial Resources

Jumpstart your next business with our free resource library.



Our organization cannot give out official legal/fiscal guidance. All articles are written by volunteers and it may be beneficial to contact professionals to assist your understanding of the information and to guide your action. Pitch Labs bears no responsibility for the results of actions taken based off of article content or any other form of assistance given.