Who is an entrepreneur in production?
|
Article Shared by Show
The following points highlight the top five functions of an entrepreneur. The functions are: 1. Decision Making 2. Management Control 3. Division of Income 4. Risk-Taking and Uncertainty-Bearing 5. Innovation. Function # 1. Decision Making:The primary task of an entrepreneur is to decide the policy of production. An entrepreneur is to determine what to produce, how much to produce, how to produce, where to produce, how to sell and’ so forth. Moreover, he is to decide the scale of production and the proportion in which he combines the different factors he employs. In brief, he is to make vital business decisions relating to the purchase of productive factors and to the sale of the finished goods or services. Function # 2. Management Control:Earlier writers used to consider the management control one of the chief functions of the entrepreneur. Management and control of the business are conducted by the entrepreneur himself. So, the latter must possess a high degree of management ability to select the right type of persons to work with him. But, the importance of this function has declined, as business nowadays is managed more and more by paid managers. Function # 3. Division of Income:The next major function of the entrepreneur is to make necessary arrangement for the division of total income among the different factors of production employed by him. Even if there is a loss in the business, he is to pay rent, interest, wages and other contractual incomes out of the realised sale proceeds. Function # 4. Risk-Taking and Uncertainty-Bearing:Risk-taking is perhaps the most important function of an entrepreneur. Modern production is very risky as an entrepreneur is required to produce goods or services in anticipation of their future demand. Broadly, there are two kinds of risk which he has to face. Firstly, there are some risks, such as risks of fire, loss of goods in transit, theft, etc., which can be insured against. These are known as measurable and insurable risks. Secondly, some risks, however, cannot be insured against because their probability cannot be calculated accurately. These constitute what is called uncertainty (e.g., competitive risk, technical risk, etc.). The entrepreneur undertakes both these risks in production. Function # 5. Innovation:Another distinguishing function of the entrepreneur, as emphasised by Schumpeter, is to make frequent inventions — invention of new products, new techniques and discovering new markets — to improve his competitive position, and to increase earnings. Conclusion: The above description indicates the supreme position of the entrepreneur in an organisation. This is particularly true in the capitalistic or even mixed economy which is based on the price-profit system. In the socialistic economy, the state becomes the entrepreneur; the scope of private entrepreneur is extremely limited in such an economy. It is to be noted that the importance of the entrepreneur has been declining with the growth of joint stock business and state-undertakings,. This is due to the fact that “risk is borne by the shareholders and the day-by- day control of the business is generally in the hands of salaried managers or managing directors”. An economic concept that refers to the inputs needed to produce goods and services What are Factors of Production?Factors of production is an economic concept that refers to the inputs needed to produce goods and services. The factors are land, labor, capital, and entrepreneurship. The four factors consist of resources required to create a good or service, which is measured by a country’s gross domestic product (GDP). In factors of production, the word “production” refers to a process of transforming inputs into outputs, which are finished products that can be sold as a good or service. In order to do so, the input will go through a production process and various stages to reach the hands of consumers. Land as a Factor of ProductionLand is a broad term that includes all the natural resources that can be found on land, such as oil, gold, wood, water, and vegetation. Natural resources can be divided into renewable and non-renewable resources.
All resources, whether it is renewable or non-renewable, can be used as inputs in production in order to produce a good or service. The income that comes from using land and its natural resources is referred to as rent. Besides using its natural resources, land can also be utilized for various purposes, such as agriculture, residential housing, or commercial buildings. However, land differs from the other factors of production because some natural resources are limited in quantity, so its supply cannot be increased with demand. Labor as a Factor of ProductionLabor as a factor of production refers to the effort that individuals exert when they produce a good or service. For example, an artist producing a painting or an author writing a book. Labor itself includes all types of labor performed for an economic reward, such as mental and physical exertion. The value of labor also depends on human capital, which is determined by the individual’s skills, training, education, and productivity. Productivity is measured by the amount of output someone can produce in each hour of work. The income that comes from labor is referred to as wages. Note that work performed by an individual purely for his/her personal interest is not considered to be labor in an economic context. The following are several characteristics of labor in terms of being a factor of production:
Capital as a Factor of ProductionCapital, or capital goods, as a factor of production, refers to the money that is used to purchase items that are used to produce goods and services. For example, a company that purchases a factory to produce goods or a truck that is purchased to do construction are considered to be capital goods. Other examples of capital goods include computers, machines, properties, equipment, and commercial buildings. They are all considered to be capital goods because they are used in a production process and contribute to the productivity of work. The income that comes from capital is referred to as interest. Below are several defining characteristics of capital as a factor of production:
Entrepreneurship as a Factor of ProductionEntrepreneurship as a factor of production is a combination of the other three factors. Entrepreneurs use land, labor, and capital in order to produce a good or service for consumers. Entrepreneurship is involved with establishing innovative ideas and putting that into action by planning and organizing production. Entrepreneurs are important because they are the ones taking the risk of the business and identifying potential opportunities. The income that entrepreneurs earn is called profit. More ResourcesIf you would like to gain valuable skills that can help develop your journey in corporate finance, CFI is the official provider of the Financial Modeling & Valuation Analyst (FMVA)® certification program. CFI also offers a variety of courses and related readings for you to continue learning, including:
Why is entrepreneur important in production?Entrepreneurs are important to market economies because they can act as the wheels of the economic growth of the country. By creating new products and services, they stimulate new employment, which ultimately results in the acceleration of economic development.
What are 3 roles entrepreneurs play in the production process?Planning, selling, and executing sound straightforward, but playing the three roles at once can be challenging for early-stage CEOs. At times these aspects of the job can seem the antitheses of each other, and few people possess the talent to do all three equally well.
Who are an entrepreneurs?An entrepreneur is someone who has an idea and who works to create a product or service that people will buy, as well as an organization to support that effort. An entrepreneur takes on most of the risk and initiative for their new business, and is often seen as a visionary or innovator.
Is a producer an entrepreneur?Producers are also entrepreneurs. They are the main coordinators of all the factors of production like land, labour, capital etc. They usually take the responsibilities to allocate the factors of production for conducting smooth business activities.
|
