REVISED GCSE

FACT FILES
3.1 Business Start Up
For first teaching from September 2008
For first award in Summer 2009

Factors of Production
Factors of Production

Land
Learning Outcomes

At the end of this unit students should be

able to:
demonstrate knowledge and understanding of land,
labour, capital and enterprise;

describe what it means to be enterprising; and

The factor of production land comprises not only the actual
identify the key entrepreneurial characteristics land on which the firm has its factory or offices but also all
displayed by successful business people the natural resources, such as the minerals, raw materials,
vegetation and wildlife that can be extracted from it. For
Tayto the category land would include the site on which the
Tayto is situated, but also the potatoes and other naturally
Setting the Scene occurring raw materials used in the production of potato
crisps and corn snacks.
Tayto
When dealing with the resources taken from the land a
distinction needs to be made between renewable and
non-renewable resources. Renewable resources are those
that can be used and replaced. For example, water in a lake
can be used, but can also be replenished. Whereas non-
renewable resources are those that once used cannot be
used again. For example, coal and oil.

Labour
Northern Ireland snack food manufacturer Tayto has
announced a multi-million pound contract to supply
Tesco supermarkets. Tayto, which produces potato crisps
at its Tandragee plant in County Armagh, will supply the
supermarket with a range of its own-brand snacks.

The contract is estimated to be worth more than £10m

annually. Tayto’s Stephen Hutchinson said the contract was
an endorsement of the company’s investment strategy.
“Tayto has recently completed a capital expansion project
amounting to over £7m,” he said. Tayto employs 350 people
in its factory in Tandragee and sources most of its potatoes
and other raw materials from the local farming community.
Factors of production
When a business sets about producing goods and services,
it will generally need to employ a variety of resources.
These resources are normally divided into categories and
are known as the factors of production.
The term labour refers to the workers who make the
products. For Tayto this includes the people who work
directly in the production of the crisps and also those who
are indirectly involved, for example the clerical workers,
support staff and the sales team. At present Tayto employ
350 workers at their factory in Tandragee however other
workers such as the potato farmers depend on Tayto for
their jobs. Firms generally refer to their workers as their
employees.
Capital The optimum mix of resources will also change if the costs
of employing them changes. For example if Tayto find that
The term capital has many meanings and is sometimes
wage costs are increasing relative to the cost of machinery
used to refer to the finance needed to start up and run the
they may decide to invest in more machinery and employ
business. However strictly speaking the term capital refers to;
less workers.
a) Fixed capital
This includes all the machinery, work plants, equipment, What are the key characteristics
new technology, factories, buildings, and goods that are
used by the firm to produce its output. For Tayto this
of an entrepreneur?
includes the factory itself and all of the equipment which is A skilled entrepreneur is the key to the success of a business
used in the production of potatoes. since it is he or she that has the ability to bring the other
factors together in the most efficient way. While there is no
b) Working capital
universally accepted definitive list of characteristics that an
This includes the stock of finished and semi finished goods
entrepreneur must possess, most successful entrepreneurs
and components that will either be consumed in the
would possess all or many of the following:
future or used up in the production process. For Tayto this
includes all the sliced and fried potatoes which have yet to
1. Intuition:
be flavoured and packed and all the stock of unused boxes
A successful entrepreneur will have a sense of what is likely
and bags.
to be successful and what is not. He/she will be original and
will have the ability to stay ahead of the market.
Enterprise
2. Vision and communication skills
Some economists simply regard enterprise as a specialist
An entrepreneur will have a clear vision of what he/she
form of labour input. However others believe that they
wants to achieve and will have the skills necessary to
deserve recognition as a separate factor of production in
communicate this vision to others.
their own right. The term enterprise or entrepreneurship
3. Energy and determination
refers to the management skills needed to bring all the
A successful entrepreneur will have the energy and
other factors together and make them work to produce
determination to work long hours to make the business a
goods and services
success.
An entrepreneur therefore is a risk taker who has the skills 4. Perseverance
to organise the other factors of production and produce a Most successful entrepreneurs have experienced failure in
good or service at a profit. their business dealing at one time or another, but what sets
them apart is that they had the perseverance to keep trying.
5. Risk taker
Activity An entrepreneur is someone who is a risk taker, however
a successful entrepreneur takes calculated risks, in other
words he/she is not foolish with his/her own or anyone
The following entrepreneurs are on the panel of the popular
else’s money.
TV show Dragons Den:

Deborah Meaden, Duncan Bannatyne, James Caan, Peter

Jones and Theo Paphitis.

Try to find out what businesses these people are involved in.

In order to be successful, a business needs to achieve as

good a mix as possible of the factors of production. For
example Tayto is successful because it not only has the land
and raw materials that come from it, but it also has the right
mix of equipment and employees in its factory.

The exact mix of factors used by Tayto will change from

time to time and will depend on such things as the need
to expand, the availability of skilled labour, changes in
technology and most importantly the experience and
entrepreneurship of its owners.
 Case Study Revision questions

A west Belfast businessman has been acknowledged as one 1. What are the four factors of production?
of Northern Ireland’s most successful entrepreneurs. 2. What are the costs of employing these factors of
production?
Terry Cross, the founder and owner of Delta Print &
3. Explain the difference between fixed capital and working
Packaging, was awarded the Distinguished Graduate of
capital.
the Year Award, on behalf of the First Trust Bank and the
4. Explain 3 key characteristics of an entrepreneur.
University of Ulster, at a recent ceremony. Delta Print
& Packaging Ltd has quickly become one of the most 5. How might a firm such as Tayto react if wages were to
successful companies in west Belfast, being part of the increase relative to the cost of machinery?
folded packaging business for 25 years. The company
supplies the high-end market of the pharmaceutical and fast
food industry, turning over millions annually and enjoying a
20 percent year on year growth over the past 10 years.

Through experience gained from 28 years in business,

Mr Cross has a lot of advice to offer those starting out.
“There are three things you will need,” he said. “Make sure
there is a growing market for your product, ensure you
have the determination to overcome the setbacks you will
encounter and have adequate resources to back up your
new venture. “Get these three things and your chances of
making it will increase.

1. What is meant by the term enterprise?

2. What does Mr Cross believe are required to be a
successful entrepreneur?
3. What other factors of production are used by a company
such as Delta Print & Packaging?

Key Terms
• The factors of production are the resources used in the
production of goods and services. Land comprises not
only the actual land but also all the natural resources that
can be extracted from it.
• Renewable resources are those that can be used and
then replaced, for example wood.
• Non-renewable resources are those that once used
cannot be used again for example coal and oil.
• Enterprise refers to the management skills needed to
bring all the other factors together to produce goods and
services.