Businesses use human creativity to address changes in consumer preferences and to invent goods and services that consumers haven't even imagined yet. Many of the advances in our world today are the result of the application of intellectual human resources.įinally, labor brings creativity and innovation to businesses. In order to remain competitive, businesses place a premium on employees who bring these “soft skills” to the table. Intellectual contributions include experience in and out of school, training, skills, and natural abilities. This broader definition of labor is particularly important in today's technology-driven business environment, which has come to rely much more on the intellectual contributions of the labor force than the physical labor required of, say, working in a production line. The word labor often calls to mind physical labor-working in a factory or field, constructing a building, waiting tables in a restaurant-but it can refer to any human input (paid or unpaid) involved in the production of a good or service. You may possess certain human resources already-perhaps you have an athletic gift that enables you to play professional ball to earn a living, for example-but you can also develop them through job training, education, experience, and so on. You’re adding to your own human resources right now by learning. Labor Labor refers to human resources (also called human capital)-physical or intellectual. Resources that are cultivated or made with human effort can't be considered natural resources, which is why crops aren't natural resources. It's also possible to invent new uses for natural resources (using wind to generate electricity, for example). These natural resources can be renewable, such as forests, or nonrenewable, such as oil or natural gas. New natural resources-or new ways of extracting them (such as fracking, for example)-can be discovered, though. Examples of natural resources are land, trees, wind, water, and minerals.Ī key feature of natural resources is that people can't make them. In order to provide benefit, people first have to discover them and then figure out how to use them in the the production of a good or service. Natural Resources Natural resources have two fundamental characteristics: (1) They are found in nature, and (2) they can be used for the production of goods and services. Capital (machinery, factories, equipment).Ex: When one more chef is added, and production increases to x units when the second worker has hired the output increases by more than 2x units. Marginal Product is the change in the total product as a result of changing the variable factor of production by 1 unit. Average Product is maximum at the point that the Total Product is the steepest. Total Product / Variable Factor of Production. No firms hire beyond L2 too much labor to capital, and less than L1 too much capital to labor.After L2, there is too much labor for the available capital, workers get in each other’s way, and each contribution of everyone new worker is negative.Hiring more workers results in each new worker adding less to the output. Adding extra workers increases total output, but at a decreasing rate, more workers contribute less each, and the marginal product begins to fall (L1 to L2).Therefore the marginal product is rising till L1. The output will increase at an increasing rate till L1.They can specialize and further increase output. If there are two workers, the second worker can do the same work as the first, and the output will be 2x units. The worker takes orders, makes pizzas, cleans tables and serves the bill. With no workers, the output is zero, with one worker the output is ‘x’ units. Think of a pizzeria, with tables, chairs, and ovens (fixed factor of production). The law of diminishing marginal returns determines the behavior of output in the short-run. If more and more of a variable Factor of Production is used in a combination with a fixed factor of production, marginal product, then the average product will eventually decline. In the Long-Run, all factors of production are variable, while in the very long-run all factors of production are variable and research and development is possible. Usually, capital is considered constant in the short-run. The Short-Run is the period in which at least one factor of production is considered fixed. Similar Posts: Theory of Production: Short-Run Analysis
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