Answer to Question 1
a
Answer to Question 2
The factors of production are land, labor, and capital and the decision about what to produce
begins with these factors. Without these factors, production cannot occur. This is the first
question that someone starting a business must ask: What factors of production are necessary and
available to realize my vision?
Land refers to all natural resources, anything provided by nature. Cotton is an important
land-based factor of production for a business that makes T-shirts.
Labor is human production, the physical and mental effort that is necessary to produce
something. This is what employees provide, whether it is balancing the books, painting a house,
cleaning floors, or writing a legal brief, in exchange for wages.
Capital is physical and human capital. Physical capital is the manmade items that are
used to produce something else. Buildings, manufacturing machines, vehicles, paper, computers,
telephones, and desks are all physical capital. Human capital is the knowledge and skills people
have acquired to build goods and services.
