Factors of production

• Law of diminishing returns - Refers to when output starts to increase at a decreasing rate.

  Diminishing returns to labour occurs when the marginal product of labour starts to fall.
• What are the factors of production?

  Capital - machines, roads, factories, schools, office blocks which human beings have produced in order to produce other goods and services.

  Enterprise - generate ideas, take risks, organise production

  Land - natural resources that are available for production

  Labour - human input to the process.
• What are the factor costs?

  Capital - interest payments

  Enterprise - profit/dividend payments

  Land - rent

  Labour - wages/salaries
• Sunk costs - costs which have already been paid and the firm cannot recover them.