Factors of Production Overview

Resources used to produce goods and services in an economy.

Natural resources like oil, gold, wood, water, and vegetation.

The physical or mental effort exerted to produce goods or services.

Man-made resources (machinery, equipment) used for further production.

The individual who combines the other factors of production to create a good or service.

Cannot be moved from one place to another.

Labor's time cannot be recovered if not used.

A production law stating that as the amount of a variable input is increased, while holding other inputs constant, the marginal product of the variable input will eventually decrease.

An input to production that cannot be changed in the short run.

An input to production that can be changed in the short run.

The total output produced by a given combination of inputs.

Total product divided by the number of units of the variable input.

The additional output produced when one more unit of a variable input is added.

A period of time in which at least one input is fixed.

The different phases of output as variable inputs increase.

Variable input units are identical in quality and productivity.

The money cost of production, including payments for resources and raw materials.

The total cost of producing a good or service, including all resources used, like time and opportunity costs.

Payments made to external resources used in production, like wages or rent.

The cost of using self-owned resources, like the value of an entrepreneur's time.

Explicit costs, the monetary costs accounted for in a business's records.

Total cost of production, including explicit and implicit costs.

Costs that remain constant regardless of production level.

Costs that change with production level.

Costs that can be directly traced to a specific project or product.

The value of the next best alternative forgone when a choice is made.

The original price paid for an asset when it was first acquired. It's used to determine the value of the asset for accounting purposes.

The current market price you'd pay to buy the same asset today, even if you already own it.

The extra cost of producing one more unit of a good or service.

The total cost a company incurs to acquire inputs or produce a product. Includes all expenses recorded in the company's financial statements.

Costs incurred by a company to produce a good or service, including both explicit and implicit costs.

The cost imposed on society by the production of a good or service, not borne by the company itself. Examples include pollution or traffic congestion.

The additional cost of making a change to a business activity, such as adding a new product line or expanding production.

Costs that have already been incurred and cannot be recovered. They should be ignored when making future decisions.