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- The aim of production is to produce the goods and services that we want.
- There are four requirements for the production of goods and services.
- The first requirement is land, and other natural resources such as water, forests, and minerals.
- The second requirement is labor i.e, people who will do the work.
- Some production activities require highly educated workers to perform the necessary tasks. Other activities require workers who can do the manual work.
- The third capital is physical capital i.e, the variety of inputs required at every stage during production.
- Items that come under physical capital are:
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- Tools, machines, and buildings can be used in production over many years, and are called fixed capital.
- Raw material and money in hand - it is called working capital.
- The fourth requirement is knowledge and enterprise to put together land, labor, and physical capital and produce an output. It is called human capital.
- Every production is organized by combining land, labor, physical capital, and human capital, known as production factors.
