Factors of Production: Entrepreneur


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In today’s class, we will be talking about the Factors of Production: Entrepreneur. Enjoy the class!

Factors of Production: Entrepreneur

Factors of Production: Entrepreneur classnotes.ng

The Entrepreneur is the one that initiates the process of production by mobilizing the other factors of production. He organizes, manages and controls the affairs of the firm. He is the risk bearer and in consideration of this the profit maker as well. Simply put the entrepreneur is the owner of the business. They are sometimes called the MANAGER.

However, these are the days of specialization. So we often see a separation between ownership and management. So, we now have a different set of functions for the managers and the entrepreneurs.

The managers take care of the routine day to day decisions. The entrepreneurs focus on risk-bearing and initiating production. Let us take a look at some functions of the entrepreneur.

Functions of an Entrepreneur

1. Initiating the Business:

This is the first function of the entrepreneur, to start a business. Firstly the entrepreneur spots business opportunities in the economy he can exploit. Then he develops the project ideas and decides on the scale of the business. Finally, he must obtain the different factors of productions to get the ball rolling.

The entrepreneur has to build up his business dynamically. He must coordinate the factors of production and utilize them in the right proportions. The aim is to generate higher productivity from these factors. So the entrepreneur must get the greatest yield for the lowest cost from these factors of production.

2. Risk Bearing:

This is perhaps the most important function of entrepreneurs. The entrepreneurs bear the risks of failure in exchange for the profits of the company. So, in dynamic economic model things can change very fast. So, the business plans of the entrepreneur should be able to adapt to the changes.

The consumer taste may change, there can be new entrants in the market, taxes may increase, etc. These will all affect the demand and supply of the product. And in turn, the entrepreneur may face some financial losses. Entrepreneurs have to bear these financial risks.

Then there are technological risks as well. These days we make technological advancements every day. So, there is a risk that the product may become obsolete. Or more innovative means of production may be developed. There are other risks such as theft, accidents, etc.

In exchange for all these risks, the entrepreneurs enjoy the profits earned by the firm. Profit is their reward for bearing the risks. Unlike some of the other management functions, risk-bearing cannot be delegated to the manager. The owner/entrepreneurs have to bear all the risk.

3. Innovation:

One of the other important functions of entrepreneurs is to continuously innovate. This innovation can be in the field of new products, new production methods/technology, new business models, exciting and new promotion tactics, exploring new markets, etc. This will help entrepreneurs with the economic growth of the firm.

However, any innovation or technology comes with its share of new risks as well. It will be the job of the entrepreneur to manage such risks in exchange for the scope for higher returns and higher profits. Ultimately this innovative spirit of the entrepreneur will lead to advancements in the firm and even the economy as a whole. The most successful entrepreneurs are all great innovators.


In our next class, we will be talking about Factors of Production: Land. We hope you enjoyed the class.

Should you have any further question, feel free to ask in the comment section below and trust us to respond as soon as possible.

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