ESSAY
By discipline: "Economics"
TOPIC: " Entrepreneurship as a factor of production"
Performed:
Checked:
Vladimir 2010
Introduction ___________________________________________________ 3str
I. Entrepreneurship
1.1 The history of the formation of entrepreneurship _______________4str
1.2 Functions of Entrepreneurship
1.3 Characteristic features of entrepreneurship and its features ___ 11str
1.4 Entrepreneur and his role in the economy _______________ 13str
II. Forms and types of entrepreneurship _________________________ 15str
2.1 The essence of industrial entrepreneurship.___________15str
2.2 Forms of entrepreneurship______________________________19str
Conclusion____________________________________________________________ 22str
List of used literature _____________________________ 23str
INTRODUCTION
Entrepreneurship is one of the most important subjects of study of economic science, since it is the entrepreneur who is the main actor in a market economy. Without this type of activity there can be no efficient economy, no market. Having embarked on the path of market development, we must inevitably create conditions for the revival and development of entrepreneurship. At the same time, the modern development of entrepreneurship is associated with many negative phenomena, it is in the sphere of close criminal attention. Further development market relations associated with the creation of favorable conditions for the development of entrepreneurship in our country.
In my work, I want to address such issues as:
1) The history of the formation of entrepreneurship. And different approaches to the definition of entrepreneurial activity and entrepreneur;
2) Functions of entrepreneurship;
3) Characteristic features of entrepreneurship and its features;
4) Entrepreneur and his role in the economy;
5) Forms and types of entrepreneurship;
6) The essence of industrial entrepreneurship.
I. ENTREPRENEURSHIP
1.1 The history of the formation of entrepreneurship. Different approaches to the definition of entrepreneurial activity and entrepreneur.
The history of entrepreneurship begins in the Middle Ages. Already at that time, merchants, merchants, artisans, missionaries were beginning entrepreneurs. With the rise of capitalism, the desire for wealth leads to the desire for unlimited profits. The actions of entrepreneurs are taking on a professional and civilized character. Quite often the entrepreneur, being the owner of the means of production, also works in his own factory, in his own plant.
From the middle of the XVI century. share capital appears, organized joint-stock companies. The first joint-stock companies arose in the field international trade. The very first was founded by the English trade company for trade with Russia (1554). Later, in 1600, the English East India Trading Company was established, in 1602 the Dutch East India Company, and in 1670 the Hudson's Bay Company. In the future, the joint-stock form of management penetrates into other sectors of the economy.
At the end of the XVII century. the first joint-stock banks appear. So, in 1694, the Bank of England was founded on a joint-stock basis, in 1695 - the Bank of Scotland. At the end of the 18th and beginning of the 19th centuries the joint-stock form of the organization of banking is widely developed in many countries. During this period, the property of previously existing large family firms breaks up into hundreds, thousands of shareholders. The gap between the small and big business. In such conditions, it becomes more and more difficult for small firms to survive, they are unable to innovate, but medium and large firms are widely developed. The motive for maximizing profit sounds louder and louder. During this period, a new profession appears - manager-leader and organizer large-scale production. Entrepreneurial functions, previously concentrated in one person, are divided into specialized areas. There are financiers, economists, accountants, lawyers, designers, technologists. Above all of them, as it were, rises the manager, freed from many functions and focused on the management and organization of production.
Entrepreneurship has existed in Russia since ancient times. It originated in Kievan Rus in the form of trade and in the form of crafts. Small merchants and merchants can be considered the first entrepreneurs in Russia. The greatest development of entrepreneurship refers to the years of the reign of Peter I (1689-1725). Manufactories are being created all over Russia, such industries as mining, weapons, cloth, and linen are rapidly developing. The most famous representative of the dynasty of industrial entrepreneurs at that time was the Demidov family, whose ancestor was a Tula blacksmith.
The further development of entrepreneurship was held back by the existence of serfdom. The reform of 1861 became a serious incentive for the development of entrepreneurship. Construction begins railways, heavy industry is being reorganized, joint-stock activities are being revived. Foreign capital contributes to the development and reorganization of industry. In the 90s of the XIX century. in Russia, the industrial base of entrepreneurship is finally taking shape. At the beginning of the XX century. entrepreneurship is becoming a mass phenomenon in Russia, the entrepreneur is formed as an owner, although the influence of foreign capital and the state remains significant.
During this period, the labor market was formed, the joint-stock form of entrepreneurship developed, private joint-stock banks were opened: commercial, land, etc. By the beginning of the 20th century. in Russian economy 2/3 of all industrial products were produced in joint-stock, share and other collective forms entrepreneurial activity and only 1/3 accounted for individual forms.
Investments in cotton production, trade and credit were especially profitable. The process of monopolization of firms began. Among the large firms, Prodamet, Prodvagon, Produgol, partnerships of the Russian-American Manufactory, the Nobel brothers, and others are known.
Unfortunately, in Russia after the end of the First World War and the completion of two revolutions - February and October - a course was taken to eliminate market economic ties. All large enterprises were nationalized, the means of production and the property of all private entrepreneurs were expropriated.
Some revival in entrepreneurial activity was introduced by the new economic policy - NEP (1921-1926). However, since the late 1920s Entrepreneurship is again curtailed and only in the 1990s. began his resuscitation in Russia. In October 1990, the Law "On Property in the RSFSR" was adopted, in December 1990 - the Law "On Enterprises and Entrepreneurial Activity". From the moment when private property and entrepreneurial activity were restored in their rights, the development of joint-stock companies, partnerships, and other forms of enterprise activity began.
What is meant by the terms "entrepreneur" and "entrepreneurship"?
These concepts in the modern sense were first used by an English economist of the late 17th - early 18th centuries. Richard Cantillon. He expressed the opinion that an entrepreneur is a person acting in conditions of risk. R. Cantillon considered the source of wealth to be land and labor, which determine the real value of economic goods. In 1797 Baudot regarded the entrepreneur as the person responsible for the undertaking; one who plans, controls, organizes and owns an enterprise.
Later, the famous French economist of the late XVIII - early XIX centuries J. B. Say (1767-1832) in the book "Treatise of Political Economy" (1803) formulated the definition of entrepreneurial activity as a combination, a combination of three classical factors of production - land, capital, labor of entrepreneurs, was one of the success factors. Say's main thesis is to recognize the active role of entrepreneurs in creating a product. An entrepreneur, he pointed out, is a person who undertakes at his own expense and risk and for his own benefit to produce some product.
English economists A. Smith (1723-1790) and D. Ricardo (1772-1823) represented the economy as a self-regulating mechanism. There was no place for creative entrepreneurship in such a mechanism. At the same time, in his main work "A Study on the Nature and Causes of the Wealth of Nations" (1776), A. Smith paid attention to the characteristics of the entrepreneur. An entrepreneur, according to A. Smith, being the owner of capital, takes risks in order to implement a certain commercial idea and make a profit, since capital investments in a particular business always contain an element of risk.
D. Ricardo saw in capitalism an absolute, eternal, natural mode of production, and considered entrepreneurial activity as an indispensable element of effective management. And only at the turn of the XIX-XX centuries. understanding of the importance and role of the institution of entrepreneurship begins.
And here is how the concept of "entrepreneurship" is interpreted in the Encyclopedic Dictionary of an Entrepreneur:
“Entrepreneurship is an initiative independent activity of citizens aimed at making a profit or personal income, carried out on their own behalf, under their own property responsibility or on behalf of and under legal liability legal entity. An entrepreneur can carry out any kind of economic activity not prohibited by law, including commercial intermediation, trade-purchasing, consulting and other activities, as well as operations with securities”.
1.2 Functions of entrepreneurship
In a developed market economy, entrepreneurship as an integrated set of entrepreneurial organizations (companies, firms), individual entrepreneurs, as well as complex associations of business organizations, performs the following functions: general economic, creative and search (innovative), resource, social, organizational.
The defining factor, in my opinion, in a developed market economy is general economic function , which is objectively determined by the role of business organizations and individual entrepreneurs as subjects of the markets. Entrepreneurial activity is aimed at the production of goods (performing work, rendering services) and bringing them to specific consumers: households, other entrepreneurs, the state, which, first of all, predetermines the general economic function. Moreover, entrepreneurial activity is carried out by its subjects under the influence of the entire system of economic laws of a market economy (supply and demand, competition, cost, etc.), which is the objective basis for the manifestation of a general economic function. The progressive development of entrepreneurship is one of the determining conditions for economic growth, an increase in gross domestic product and national income, and this factor also acts as a manifestation of a general economic function in the system of economic relations.
The most important function of entrepreneurship is resource .
The development of entrepreneurship involves the effective use of both reproducible and limited resources, which means that resources should be understood as all material and non-material conditions and factors of production. Of course, first of all, labor resources (in the broad sense of the word), land and natural resources, all means of production and scientific achievements, as well as entrepreneurial talent. An entrepreneur can achieve the highest success if he is able to generate scientific and technical ideas, innovations in the field of activity in which he creates his own business, will use a highly skilled workforce, and efficiently consume all types of resources. But the pursuit of the maximum income (surplus) of entrepreneurs often leads to the predatory use of resources. Such entrepreneurs by their activities harm the environment and the population. In this regard, the regulatory role of the state, which establishes the forms of responsibility of entrepreneurs for the incorrect use of the resource function, which is contradictory and has a dual nature, is of great importance. The entrepreneur, as the owner of resources, is interested in their rational use and at the same time can treat public resources ruthlessly.
Entrepreneurship is characterized creative search(innovative) function associated not only with the use of the process of entrepreneurial activity of new ideas, but also with the development of new means and factors to achieve the goals. The creative function of entrepreneurship is closely related to all other functions and is determined by the level of economic freedom of business entities, the conditions for making managerial decisions.
In the process of establishing a market economy, entrepreneurship acquires social a function that manifests itself in the ability of each capable individual to be the owner of the business, to show his individual talents and capabilities with the greatest return. This function is increasingly manifested in the formation of a new layer of people - entrepreneurial people who gravitate towards independent economic activity, able to create their own business, overcome the resistance of the environment and achieve their goals. At the same time, the number of employees is increasing, which, in turn, economically and socially depends on how stable the activities of entrepreneurial firms are.
The more efficiently business organizations function, the more significant are the receipts of their funds to the budgets of various levels and to state non-budgetary social funds. At the same time, the development of entrepreneurship provides an increase in the number of jobs, a reduction in unemployment, an increase in the level of social position hired workers.
The most important function of entrepreneurship is also organizational , which manifests itself in the adoption by entrepreneurs of an independent decision on organizing their own business, its diversification, in the introduction of intra-company entrepreneurship, in the formation of entrepreneurial management, in the creation of complex entrepreneurial structures, in changing the strategy of an entrepreneurial firm, etc. The organizational function is especially clearly manifested in the rapid development of small and medium-sized businesses, as well as in "collective (network) entrepreneurship", in the creation of people's enterprises.
Consequently, the essence of entrepreneurship is most comprehensively manifested in the combination of all its inherent functions, which are objectively characteristic of civilized entrepreneurship, but largely depend on the business entities themselves, on the system state support and business regulation.
1.3 Characteristic features of entrepreneurship and its features
The modern understanding of entrepreneurship makes it possible to single out four main features of it:
1. The subject has a certain set of rights and freedoms:
- on the choice of the type of economic activity and its planning;
- on the choice of funding sources and on access to resources;
- organization and management of production;
- sales of products and services;
2 . Ownership of the means of production. Production output and income, that is, the presence of private property.
3 . The presence of a certain economic environment and an appropriate economic climate that would actually provide, and not just declare: self-government; freedom of economic choice; opportunity to invest income.
4 . The existence of a competitive economic regime. The basic rule of entrepreneurial activity is to obtain an increase in the initial capital expended, an increase in profits. The result of entrepreneurial activity is to increase the efficiency of the use of economic resources. Since it is the constant search for new ways to efficiently use resources in order to maximize profits that distinguishes an entrepreneur from an ordinary business executive.
Entrepreneurship - economic activity using novelty, risk, invention in order to generate income.
In a broad sense, entrepreneurship is economic innovation.
In a narrow sense, entrepreneurship is understood as a process; creating a new business in a competitive environment.
Entrepreneurship is characterized by the following features:
1 . Not only freedom in the choice of economic activity and its methods, not only independence, but the main thing - innovation .
Entrepreneurship is not possible without innovation. In this regard, two models of entrepreneurial behavior can be distinguished:
The classical one is that a businessman strives to organize his activities with the expectation of maximizing the return on the resources at his disposal;
Innovation is focused not only on available resources. And on the opportunity to attract and use external resources.
2. Responsibility for decisions made and their consequences associated with this risk. Non-responsible activity is not entrepreneurship, but simple management on behalf.
RISKS OF THE ENTREPRENEUR- the possibility of failures, losses in entrepreneurial activity, which, with a careless, illiterate approach to business, can lead to undesirable consequences, damage.
Distinguish commercial risks :
a) the risk associated with the quality and sale of goods on the market (technical, construction and installation risks);
b) the risk associated with the transportation of goods (transport risk c) the risk associated with the acceptance of goods by the buyer;
d) the risk associated with inflation (inflation risk);
e) the risk associated with the solvency of the buyer and his attitude to the fulfillment of payment obligations;
f) risk associated with fluctuations in the exchange rate (currency risks); g) risk associated with unforeseen circumstances (natural disasters, etc.).
Political risks :
a) the risk associated with the introduction in the buyer's country of an import ban; i) the risk associated with the convertibility of currencies or the establishment of a ban on money transfers;
b) the risk associated with strikes, political instability, wars, etc.
Risk can be measured in different ways methods:
statistical, in which they study the statistics of losses in the past and give a forecast for the future;
expert, in which the opinion of specialists and experienced businessmen is studied;
calculation and analytical, based on mathematical techniques;
3 .Orientation to achieve economic and, perhaps, moral success.
1.4 Entrepreneur and his role in the economy
ENTREPRENEUR A person who takes on the risk of starting a new enterprise or developing a new idea, a new product, or a new type of service to be offered to society. The term "entrepreneur" was introduced by the French economist Richard Cantillon, who lived at the beginning of the 18th century.
The entrepreneur is focused on finding new opportunities with a rapid change in technology, changing demand, social preferences, etc.
The entrepreneur acts quickly, takes risks, does not hold on to an idea that failed to prove its viability in a short time;
The entrepreneur introduces new resources, as a rule, in stages, for the next stage of work;
The entrepreneur, showing flexibility and taking risks, makes extensive use of leasing and other forms of temporary attraction of resources as needed;
The entrepreneur, as a rule, prefers a horizontal organizational structure, which rests on informal connections; Successful entrepreneurs are a special "breed" of people. A generalization of the opinions of foreign experts allows us to identify the following main characteristics of the personality of a successful entrepreneur:
- bad employees themselves, they were usually fired from at least one job;
- did paper work;
- perform best in individual sports;
- do not like to watch football, baseball, etc.;
- those who have a degree, or inventors usually do not have success in entrepreneurial activity;
- secretive;
- older children in the family;
- men who are supported by their wives;
- independent people who find it difficult to obey the orders of others;
- business people;
- realistic players, not prone to high risk;
- quickly switch to another if they face failure;
- do not recruit employees from among friends;
- invest the savings of relatives in the business;
- put business before family and personal pleasures;
- show flexible morality, are not bound by ethical standards.
In addition to these traits, entrepreneurs are self-confident, assertive, unemotional and self-controlled in relationships with other people, objective, sometimes impulsive and interested in calculated risk.
The above opinions indicate that not everyone is capable or prepared to become independent business people, entrepreneurs. Therefore, before starting your own business, it is advisable to solve one problem - evaluate yourself as a potential entrepreneur.
II . FORMS AND TYPES OF BUSINESS
The whole variety of entrepreneurial activities can be classified according to various features: type of activity, forms of ownership, number of owners, organizational-legal and organizational-economic forms, the degree of use of hired labor, etc.
By type or purpose
Entrepreneurship is very diverse. Since any business is to some extent connected with the main phases of the reproduction cycle - the production of products and services, the exchange and distribution of goods, their consumption - the following types of entrepreneurial activity can be distinguished: industrial entrepreneurship, commercial, financial.
In addition, in recent decades, in all economically developed countries of the world, such an independent type of entrepreneurship as a consultative one has been singled out.
Manufacturing entrepreneurship can be called the leading type of entrepreneurship. Here the production of products, goods, works is carried out, services are provided, certain spiritual values are created.
2.1 The essence of manufacturing entrepreneurship .
Being relatively independent, the types of entrepreneurial activity are mutually intertwined and complement each other. At the same time, priority should be given to industrial entrepreneurship, which determines all types of entrepreneurial activity and is the most complex.
Industrial entrepreneurship includes innovative, scientific and technical activities, direct production of goods and services, their industrial consumption, as well as information activity in these areas. Any entrepreneur who intends to engage in production activities, first of all, must determine what specific goods he will produce, what types of services he intends to provide. The entrepreneur then proceeds to marketing activities. To identify the need for a product, the demand for it, he comes into contact with potential consumers, buyers of goods, with wholesale or wholesale and retail trade organizations. The formal completion of negotiations can be a contract concluded between the entrepreneur and future buyers of the goods. Such a contract allows minimizing entrepreneurial risk. Otherwise, the entrepreneur begins production activities for the production of goods, having only a verbal agreement.
commercial entrepreneurship consists in operations and transactions for the resale of goods and services and is not related to the production of products. The profit of the entrepreneur is formed by selling goods at a price exceeding, exceeding the purchase price. If these transactions are carried out within the law, then they are not considered speculative.
Commercial entrepreneurship is subdivided into trade, trade-purchasing, trade-intermediary and commodity exchanges.
The field of activity of commercial entrepreneurship is commodity exchanges and commodity organizations. commodity exchange- this is a kind of wholesale commodity market without a preliminary inspection by the buyer of samples and pre-established minimum lots of goods. On the commodity exchange, commercial intermediaries and their employees voluntarily unite to carry out trading operations according to jointly developed and observed rules. The purpose of commodity exchanges is to create a mechanism for managing free competition and with its help, taking into account changes in supply and demand, to identify real market prices.
Commodity exchanges perform the following main functions:
provision of intermediary services for the conclusion of commercial transactions;
regulation of commodity trade, regulation of trade operations and resolution of trade disputes;
collection and publication of information about prices, production conditions and other factors that affect prices;
financial entrepreneurship - kind of commercial. The object of sale here is money, currency, securities.
In turn, financial entrepreneurship is divided into: banking, insurance, auditing, leasing, stock exchanges.
Insurance entrepreneurship is that the entrepreneur receives an insurance premium, which is returned only upon the occurrence of an insured event.
Financial activity penetrates both production and commercial activities, but it can also be independent: banking, insurance, and others. A commercial bank is a financial and credit institution of a joint-stock type, lending on a fee basis mainly commercial organizations, carrying out the acceptance of cash deposits and other settlement operations on behalf of clients. The source of income of a commercial bank is the difference between the interest rates of deposit and loan funds.
Advisory Entrepreneurship
The word "consultant" comes from the Latin - advising. This word refers to a specialist in a particular field, giving advice on issues of his specialty. In foreign practice, commercial, paid management consulting is called consulting.
By type of ownership the property of the enterprise can be private, state, municipal, and also be owned public associations(organizations). At the same time, the state cannot establish in any form restrictions or advantages in the exercise of property rights, depending on the location of property in private, state, municipal property or the property of public associations (organizations).
By number of owners Entrepreneurial activity can be individual and collective. At individual entrepreneurship property belongs to one to an individual. Collective entrepreneurship corresponds to property owned simultaneously by several entities with the definition of the shares of each of them (shared ownership) or without determining the shares (joint ownership). Possession, use and disposal of property in collective ownership shall be carried out by agreement of all owners.
2.2 Forms of entrepreneurship
1 Organizational and legal:
Partnerships is an association of persons created to carry out entrepreneurial activities. Partnerships are created when two or more partners decide to participate in the organization of an enterprise. An important advantage of the partnership is the possibility of attracting additional capital. In addition, the presence of several owners allows for specialization within the enterprise based on the knowledge and skills of each of the partners. The disadvantages of this organizational and legal form of entrepreneurial activity: each of the participants bears equal financial responsibility, regardless of the size of his contribution. In addition, the actions of one of the partners are binding on all the others, even if they do not agree with these actions.
Partnership participants are divided into two groups: general partners (partnership with unlimited liability) and limited partners (partnership with limited liability). In limited partnerships, some partners may have unlimited, and some - limited liability.
Society is created by agreement of at least two citizens or legal entities by pooling their contributions (both in cash and in kind) for the purpose of carrying out business activities. Members of a limited liability company are not liable for its obligations. They are liable only to the extent of the value of their contributions. In contrast to them, participants in a company with additional liability are liable with all their property.
The most common are joint-stock companies. Their difference lies in the fact that they are granted the right to attract necessary funds by issuing valuable papers- shares. At the same time, the participants in a joint-stock company are responsible for the results of its activities within the limits of the value of their shares.
An enterprise created by a group of persons for joint production or other economic activities is called a cooperative enterprise. Mandatory in a cooperative is the personal labor or other participation of its members in the activities of the cooperative, as well as the association by its participants of property shares.
cooperative - an organization created by a voluntary group of people united for entrepreneurial activities on the basis of self-government and self-financing. Can use own and borrowed funds, as well as own and leased property. The products of the cooperative are its property.
2 Organizational and economic:
Concern is a diversified joint-stock company that controls enterprises through a participation system. The concern acquires a controlling stake in various companies that are its subsidiaries. In turn, subsidiaries may also own controlling stakes in other companies. joint-stock companies often located in other countries.
Associations - a soft form of voluntary association of economically independent enterprises, organizations that can simultaneously be part of other entities. The association, as a rule, includes one-specialized enterprises and organizations located in a certain territory. The main goal of creating associations is to jointly solve scientific, technical, industrial, economic, social and other problems.
Consortium is an association of entrepreneurs for the purpose of jointly conducting a major financial transaction (for example, making significant investments in a major industrial project). Such an association of entrepreneurs has the opportunity to invest in a large project, while the risk arising from large investments is significantly reduced, since the responsibility is decomposed into many participants. In the context of the scientific and technological revolution, consortiums are emerging in new industries and at the intersection various industries and provide for joint scientific research.
Syndicate - unification of sales of products by entrepreneurs of the same industry in order to eliminate excessive competition between them.
Cartel means an agreement between enterprises of the same industry on prices for products, services, on the division of sales markets, shares in the total volume of production, and more.
Financial and industrial groups - a new organizational and economic form of entrepreneurship. They are associations of industrial, banking, insurance and commercial capital, as well as the intellectual potential of enterprises and organizations.
CONCLUSION
Having considered the issues of this work, I came to the conclusion that entrepreneurship plays an important, decisive role in the development of a market economy.
Entrepreneurship - firstly: it is an economic activity using risk, ingenuity, innovation;
Secondly: it is an initiative independent activity of citizens aimed at making a profit or personal income, carried out on their own behalf, under their property responsibility or on behalf and under the legal responsibility of a legal entity. An entrepreneur may carry out any type of economic activity not prohibited by law, including commercial mediation, trade-purchase, consulting and other activities, as well as operations with securities.
Entrepreneurship is neither a science nor an art. This is a concrete activity, practice. The market is the environment for the functioning of entrepreneurs.
Without entrepreneurial activity, the functioning of a modern market economy is impossible.
BIBLIOGRAPHY
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Entrepreneurship: Textbook / ed. M.G. Lapusty. - M .: INFRA - M, 2002. - (Series "Higher Education").
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Theme 8
FACTORS OF PRODUCTION
1 Labor market
2 Capital market
3 Land market
4 Entrepreneurship as a factor of production
5 Production function
Labor market
In economic theory under labor as a factor of production is meant any mental and physical effort made by people in the process of economic activity.
The time during which a person works is called working day or working hours. The maximum working hours are determined by two factors:
1) a person cannot work 24 hours a day, because he needs time to sleep, rest, eat, i.e. to restore the ability to work;
2) the limit of working time is determined by the requirements of a moral and social nature, because a person needs not only physical recuperation, but also the satisfaction of spiritual needs.
The actual duration of working time is influenced by such factors as the intensity of labor, the movement of the phases of the industrial cycle, the unemployment rate, the agreement between employers and trade unions.
Labor intensity characterizes the intensity of labor, which is determined by the degree of expenditure of physical and mental energy per unit of time. Under the conditions of scientific and technological revolution, the expenditure of physical energy decreases, but the expenditure of mental and nervous energy increases. A high level of labor intensity is tantamount to an increase in working hours.
Labor productivity shows how much product is produced per unit of time.
Wages form a large part of consumer income and therefore have a significant impact on the demand for consumer goods and their prices.
Modern economic theory defines wages as the price of labor. Wages are defined in the broad and narrow senses.
In a broad sense, wages include the wages of a wide variety of workers, i.e. wages also include income in the form of fees, bonuses and other remuneration for work.
In the narrow sense of the word salary refers to the wage rate, i.e. the price paid for the use of a unit of labor for a certain time (hour, day). This definition makes it possible to distinguish between general earnings and actual wages.
Distinguish between nominal and real wages.
Under nominal wages refers to the amount of money that an employee receives for his work (daily, weekly or monthly).
Real wage- this is the mass of life's goods and services that can be purchased for the money received.
The subjects of demand in the labor market are business and the state, and the subjects of supply are households.
Demand for labor is inversely related to wages. With an increase in wages, ceteris paribus, the entrepreneur must reduce the demand for labor in order to maintain equilibrium, and with a decrease in wages, the demand for labor will increase. The functional relationship between wages and labor demand is expressed in the labor demand curve.
Figure 1 - Labor market
individual labor offer is determined by the manifestation of the “substitution effect and the income effect”
Rising wages stimulate the worker to work up to a certain point. During this period, leisure and free time are sacrificed to the interests of high earnings, which means the manifestation of the "income effect".
Upon reaching a high financial position and well-being, the employee will stop further supply of his labor and refuse additional employment. The employee devotes his free time not to additional work, but to spending leisure time, which means the manifestation of the “substitution effect”, i.e. income is replaced by leisure.
A curving supply curve characterizes individual offer labor. For the economy as a whole, the supply curve will have a positive slope.
Consider the labor market in different types of market:
1) Market of perfect competition;
2) Monopsony market;
3) Monopoly market;
4) Bilateral monopoly.
1) Market of perfect competition.
A purely competitive labor market is characterized by the following features:
a) a large number of firms compete with each other in hiring a particular type of labor;
b) numerous skilled workers with the same qualifications independently offer this species labor services;
c) neither firms nor workers exercise control over the market wage rate.
In a perfectly competitive market, the number of workers employed by entrepreneurs is determined by two factors:
1) real wages in value terms;
2) the marginal product of labor.
The additional income from an additional unit of labor is called marginal profitability of labor (MRP). With an increase in the number of hired workers, there is a decrease in the value marginal product(according to the law of diminishing returns).
MRP = MP∙MR (1),
where MR is the marginal product of labor;
MR - additional income - marginal income.
Figure 2 - Graphical representation of marginal income product.
MRP = MP∙MR - in conditions of monopoly power
MRP = MP∙Р - in a competitive market
The concept of marginal profitability of a product can be applied to the employment of workers by a firm. Whatever the market finished products, the marginal return of a product measures how much a firm is willing to pay to hire additional labor.
Bye MRP is greater than the base wage rate, the firm will hire additional labor.
If a the marginal profitability of the product is less than the wage rate, the firm should lay off some of the workers.
Only when the marginal profitability of a product is equal to the sum of the wages, the quantity labor resources will maximize profit. Thus, the profit maximizing condition is the following:
The attraction of an additional unit of labor will stop when the value of the marginal product equals the wage. And there will be balance.
Markets for factors of production are in many ways similar to markets for finished products. For example, the profit-maximizing condition for factor markets is that the marginal profitability of a product must equal the wage rate, similar to the rule for the finished goods market that marginal revenue must equal marginal cost. Divide equation (1) by MP (marginal product of labor) and get:
Equation (2) shows that the choice of the amount of labor input and the volume of output of the firm obeys the same rule:
The number of factors of production and the volume of output are chosen so that the marginal revenue from the sale of products) is equal to the marginal cost (for the acquisition of production factors).
This rule applies to both competitive and non-competitive markets.
2) Monopsony Market .
A monopsony market has the following features:
a) the number of people employed in a given firm makes up the bulk of all those employed in a particular type of labor.
b) this type of labor is relatively immobile, either due to geographical factors, or in the sense that if workers have found an alternative to using their labor, then they are forced to acquire a new qualification
c) the firm "dictates wages" in the sense that the wage rate is directly dependent on the number of workers hired.
In some cases, the monopsonic power of employers is complete - the presence of only a single large employer in the labor market (the only city-forming enterprise). And in other cases it may prevail oligopsony - three or four firms may hire most of the labor offered in a particular market.
When a firm hires a significant portion of the total available supply of a particular type of labor, the decision to hire more or fewer workers will affect the rate of wages paid for labor.
If a firm is large in relation to the labor market, it will have to pay a higher wage rate in order to get more labor.
Figure 3 - Wage rate and employment rate in the monopsony labor market.
In a monopsony labor market, the employer's marginal cost curve (MRC) lies above the labor supply curve (S). By equalizing the MRC with the demand for labor MRP at point b, the monopsonist will hire Qm workers (compared to Qc under competitive conditions) and pay a wage rate Wm (as opposed to the competitive rate Qc).
Thus, ceteris paribus, the monopsonist maximizes his profit by hiring fewer workers and at the same time pays a wage rate less than under competitive conditions. Just as a monopolist - the seller considers it profitable to reduce production in order to raise the price of his goods above the competitive one, so the monopsonist - the employer of resources considers it profitable to reduce employment in order to reduce wage rates and, accordingly, costs, i.e. set wage rates below competitive rates.
3) monopoly market.
While buyers of factors of production have monopsony power, sellers of these factors may have monopoly power (holding a patent for production). The most common example of monopoly power in the factor market is associated with trade unions, which are monopolists in the marketing of labor power.
Figure 4 - Monopoly supply of labor
If the union did not have monopoly power, then the labor market would be competitive and L * workers would be hired for wages W * (point A).
However, due to monopoly power, the union can choose any wage rate and the corresponding amount of labor. Allocate following goals trade union:
a) Maximizing the number of hired workers.
If the union wanted to maximize the number of workers it hired, then it would choose a competitive solution at point A.
b) Establishing a higher level of wages - maximizing imputed profits.
If the union decides to achieve a higher than competitive wage rate, then it will limit workers' membership to L 1 . As a result, the firm will pay at the tariff rate W 1 . By restricting membership, the union acts in the same way as a firm that restricts output in order to maximize profits.
The firm's profit is the income earned minus the opportunity costs. To maximize profits, the union must choose the number of workers it hires so that the union's marginal income (extra wage) equals the extra cost of recruiting members.
In the figure, this is the amount of labor force L 1 at which the marginal revenue curve (MR) crosses the supply curve (the supply curve is the opportunity costs of hired workers).
The shaded area is the implied profit that the workers will receive.
Profit maximization policies can benefit non-union workers if they find non-union jobs. However, if there are no such jobs, then profit maximization will create a stark difference between unionized and non-union workers.
PS: Workers united in trade unions receive wages on average 10-15% higher compared to non-union members.
in) Maximization of total wages.
An alternative goal is to maximize the total wages received by all workers. To achieve this, the number of workers employed will increase from L 1 to L 2 - such an amount that the marginal income of the union does not become equal to zero. In this case, the salary level will become W 2 .
4) Bilateral monopoly.
In the labor market, a bilateral monopoly can arise when representatives of a trade union and a company that employs workers of a certain skill meet to negotiate wages.
Figure 5 - Graphical representation of a bilateral monopoly
where S L - the supply of skilled labor - discloses to the union the minimum wage required to incentivize workers to continue their work in the firm;
D L is the firm's demand curve for labor;
ME is the firm's marginal labor cost;
AE - the average cost of the company for wages;
MR - Marginal Revenue Curve - the additional wages that a union provides to its members as the number of hired workers grows
MRP L is the marginal income of a product in the labor market.
If the union did not have monopoly power, then the monopolist company would make a decision in accordance with its marginal cost curve (ME): it would hire 20 workers at a wage rate of 10 rubles per hour. (the marginal revenue of the product will be equal to the marginal costs of the firm: MRP L = ME and then the perpendicular to the curve S L).
If the trade union wants to maximize profits, then it chooses a salary of 19 rubles, because it is the wage that equalizes marginal revenue (the marginal increase in wages) with marginal cost (the increase in the minimum wage required to hire labor). At a tariff rate of 19 rubles. The firm will hire 25 workers.
The firm is willing to pay a salary of Rs. and hire 20 workers, but the trade union demands a salary of 19 rubles. and wants the firm to hire 25 workers. The result depends on the strategic objectives of the two parties.:
1) If the trade union can make a serious statement with the threat of a strike, then it can provide a salary closer to 19 rubles.
2) If firms can justifiably threaten to hire non-union members, they will be able to secure rates closer to 10 rubles.
3) If the threats of both parties are justified, then the final agreement may be closer to the competitive result (salary W c) of about 15 rubles.
Differentiation of wage rates
Wage differences depend on:
1) the professionalism of the employee and the types of work performed, the quality of the functions performed, the complexity of the work. The wage supplement increases her basic rate for work performed at night, in unfavorable or unhealthy conditions. Highly skilled labor is rewarded with higher wages, because
Such work makes a significant contribution to the profits;
The high salaries of qualified professionals compensate for the past investment of time, money and effort in education and training.
2) lack of competition between professional groups of workers, for example, between steelworkers and doctors, dancers and mathematicians, drivers and educators, etc. It is impossible for a representative of each of these categories to move from one group to another, therefore, competition between these groups does not arise. Competitive environment arises either within each professional group, or in groups of interchangeable professions.
3) Possession by some people of talents and unique abilities: musicians, scientists, artists, etc. The payment for their work includes an element of economic rent, payment for the exclusivity of their natural talents.
capital market
Eigen Böhm-Bawerk (1851-1914),
A.fred Marshall (1841-1924),
Irving Fisher (1867-1947)
Frank Knight (1885-1972)
Vilfredo Pareto (1848-1923),
John Hicks (1904-1989)
Paul Samuelson (1915-2009)
The market for capital and capital assets is component market for factors of production. Capital assets include:
All types of buildings and structures, equipment and machines for industrial purposes, equipment and tools;
Raw materials and materials;
Energy and ideas;
Software for computers.
Thus, distinguish:
Fixed capital - all property of the company;
Working capital – work force and raw materials.
Capital is in demand because it is productive. Subjects of demand for capital are entrepreneurs.
The demand for capital can be graphically represented graphically as a curve with a negative slope (Figure 6).
Figure 6 - Demand for capital
It can be seen from the graph that as investment funds increase, the marginal product of capital decreases. Under the influence of scientific technical progress(discovery of new sources of energy, development of new technologies, birth of new consumer goods) the demand curve for capital may shift to the right.
The subject of capital supply are households that offer investment funds - amounts of money used by entrepreneurs to purchase production assets. Graphically, the supply of capital can be represented as a curve with a positive slope (Figure 7).
Figure 7 - The supply of capital as a reflection of the cost of lost opportunities to use capital.
The more money households offer to a business, the greater its marginal opportunity cost, or marginal opportunity cost.
Figure 8 - Equilibrium in the capital market
Interest is a kind of equilibrium price. At point E, the marginal return on capital and the marginal opportunity cost coincide. At the same time, the demand for loan capital coincides with the supply.
Fixed capital over time enables the company to receive a certain income. The general indicator of return on capital is the annual interest rate:
where - P - interest rate,
D - income received for a certain period of time;
K - the amount of capital used.
“Interest is the price that people pay to get resources now, instead of waiting until they earn money to buy these resources” (P. Heine).
Distinguish between nominal and real interest rates.
Nominal rate - current market interest, excluding inflation.
Real rate is the nominal rate less the expected implied inflation rate.
Profitability is assessed on the basis of the net productivity of capital, calculated after paying all payments from profits and in comparison with the costs incurred. Effective investment project is a project, the annual income from which is not lower than the market rate of interest on any capital asset, including the bank interest rate.
The calculation of income, or the determination of the estimated value of the net productivity of capital, is called discounting which is carried out according to the formula:
where D is the current present value of the asset (today's value of a future amount of money);
D t is the annual future return on an asset invested for a period equal to t years, the future value of today's amount of money);
r - bank interest rate
Investments make economic sense only if the annual income from them is higher than the interest on bank deposits (deposits), and even more so on all other assets, the investment of which is associated with risk.
Investments (German Investition, from Latin investio - dress) - cash, securities, other property, including property rights, other rights having a monetary value, invested in objects of entrepreneurial and (or) other activities for profit and (or) achieving another beneficial effect.
Investment objects include:
Cash, targeted bank deposits, shares, shares and other securities;
Movable and immovable property (buildings, structures, etc.) material values);
Rights to use land and other resources, as well as other property rights and other values.
There are the following types of investments:
a) financial or portfolio (purchase of securities) investments,
b) direct investment;
c) real investments;
d) autonomous investments.
a) Portfolio investment- this is:
1) investments in securities (shares, bonds, promissory notes, debt securities) formed in the form of a portfolio of securities;
2) small investments (less than 10% of the authorized capital of the enterprise), which cannot provide their owners with control over the enterprise.
b) Direct investment- capital investments directly in the production of any product, including the purchase, creation or expansion of funds of an enterprise (branch), as well as all other operations related either to establishing (strengthening) control over a company (regardless of its legal form), or to expanding company activities. Direct investments provide investors with actual control over the invested production, i.e. is an investment in this enterprise, the volume of which is at least 10% of its share capital
in) Investments are real- long-term investments in the sector of material production.
G) Autonomous investments - the part of net investment going to the formation of new capital, not dependent on changes in national income, i.e. carried out with a constant demand for goods. They themselves become the cause of an increase or decrease in the national income, and not its consequence. Autonomous investments are needed to introduce new technology and improve product quality, etc., i.e. the reasons for the emergence of autonomous investment are external factors (leaps of technological progress, changing tastes, population growth, expansion foreign markets and etc.). Examples of "autonomous investments": the cost of inventions, the cost of satisfying changes in tastes, population, etc.
The conditions leading to a change in investment costs are called investment factors. These include:
Dynamics of production costs;
Changes in the level of tax rates for entrepreneurial activity;
Changes in production technology;
Expectations of entrepreneurial prospects.
land market
Earth- a factor of production or production resources given by nature itself, that is, all natural resources (lands, forests, waters, deposits).
land tenure means the recognition of the right of a given person (physical or legal) to a certain piece of land on historical grounds. Most often, land ownership refers to the ownership of land.
land use- is the use of land in the manner established by custom or law. The user of the land is not necessarily its owner.
This type of resource brings income to the owner in the form of rent.
Rent- is the price for the use of land and other natural resources, the supply of which is limited due to their irreproducibility.
Rent(German Rente, from Latin reddita - returned) - income not related to entrepreneurial activity and regularly received by a rentier in the form of interest on a loan (credit) of capital, and by a landowner in the form of land rent from a leased land plot. May be charged for the use of other property, incl. living quarters, natural resources. In many countries, the income received by the owner on government bonds.
PS: in the neoclassical direction, rent and rent are synonymous words.
economic rent called payments to owners of factors of production that exceed the opportunity cost of these factors. If a factor of production has no alternative uses, its opportunity cost is zero, and all income from its use is in the form of rent.
ground rent is the price paid for the use of a limited amount of land and other natural resources. Rent payments are different from wages, interest, profits and other types of income, they are part of the rent:
1) if there are no buildings, structures or any other capital on the land that is leased, then the rent, that is, a certain amount of money that will be paid by the tenant for the use of the land, will be equal to the ground rent.
2) if there are any production resources on the land (factories, plants, resource-extracting buildings), then the rent will include not only land rent, but also the loan interest for the use of the production potential located on the land.
There are the following types of land rent:
1) Absolute rent- payment of the tenant to the owner of the land for the right to manage it (regardless of the quality of the land);
2) Differential rent I- additional payment of the tenant to the owner of the land, which has a relatively higher natural fertility or is conveniently located relative to the sales market
3) Differential rent II - additional payment of the tenant to the owner of the land for the profit received through intensive management on more fertile lands.
The price of land acts as a capitalized rent, the economic meaning of which is that it provides the landowner with such a sum of money that, if placed in a bank, would bring income no less than an annual rent. The principal formula for the price of a land plot is as follows:
where - R - the amount of rent (land rent);
r- interest rate on deposits, %
PS: Dead rent- rent that is paid for unused property
Fixed annuity- securities for which the debtor guarantees a constant profitability until their maturity.
Economic rent must be distinguished from quasi-rent. Payments to owners of factors of production whose supply is fixed in the short run are called quasi rent representing the residual payment. The quasi-rent disappears in the long run, when all factors of production become variable. Economic rent persists in the long run.
Entrepreneurship as a factor of production
In economic theory, the concept of "entrepreneur" appeared in the XVIII century. And often associated with the concept of "owner". The term "entrepreneur" was first coined by Richard Cantillon (1680-1730). According to Cantillon, “an entrepreneur is a person with uncertain, non-fixed income (a peasant, an artisan, a merchant), who buys other people's goods at a known price, and sells them at a price that is still unknown to him.” It follows that risk is the main distinguishing feature of the entrepreneur, and his main economic function is to bring supply into line with demand in various product markets.
A. Smith characterized the entrepreneur as an owner who takes economic risks for the sake of implementing a commercial idea and making a profit. He himself plans and organizes production, disposes of its results.
Also contributed to the development of the theory of entrepreneurship:
Jean-Baptiste Say (1762-1832),
Werner Sombart (1863-1941),
Joseph Schumpeter (1883-1950).
The association in one person of the owner and the entrepreneur began to collapse during the period when credit appeared. Any commercial bank is not the owner of all the capital that it puts into circulation. As a rule, ownership extends to statutory fund, which may represent a small value. The most visible separation of entrepreneurship from property is found in joint-stock companies. Here, instead of real physical objects, with which the concept of ownership was traditionally associated, the shareholder owns only a piece of paper, the title of ownership. Over the entrepreneurs themselves, he, the owner of the shares, has a very conditional control. However, he is not responsible for the results of the corporation's activities. This is the responsibility of managers.
Thus, the development of credit relations and the transition of national wealth from the form of individual private property to the form of corporate ownership entails the separation of ownership of the order, entrepreneurship.
AT scientific literature Entrepreneurship is proposed to be considered in three aspects:
1) as an economic category;
2) as a method of managing;
3) as a type of economic thinking.
1) P entrepreneurship as an economic category.
To characterize entrepreneurship as economic category the central problem is the establishment of its subjects and objects.
Business entities can be:
Individuals - organizers of individual, family and larger production;
Groups of persons linked by contractual relations and economic interest;
Joint-stock companies, rental collectives, cooperatives;
The state represented by its relevant bodies.
Thus, in a market economy there are three forms of entrepreneurial activity: state, collective, private.
The object of entrepreneurship is the implementation of the most efficient combination of factors of production in order to maximize income.
2) Entrepreneurship as a method of managing the economy.
There are the following conditions that characterize entrepreneurship as farming method:
a) the main condition is autonomy, independence of economic entities, the presence of a certain set of freedoms and rights for them to choose the type of entrepreneurial activity, to choose sources of financing, access to resources, to sell products.
b) the second condition for entrepreneurship is responsibility for the decisions made, their consequences and associated risks.
c) the third sign of entrepreneurship is focus on achieving commercial success, the desire to increase profits.
3) Entrepreneurship as a type of economic thinking.
Entrepreneurship as a special type of economic thinking characterized by a set of original views and approaches to decision-making, which are implemented in practical activities.
The income from business activities is profit.
Profit is the excess of income from the sale of goods and services over the costs of producing and selling these goods. This is one of the most important indicators of the financial results of the economic activity of enterprises and entrepreneurs.
Profit is calculated as the difference between the proceeds from the sale of a product of economic activity and the sum of the costs of production factors for this activity in monetary terms.
There are the following types of profit:
1) total profit, called gross (balance sheet);
2) net profit, remaining after payment of taxes and deductions from gross profit;
3) accounting, calculated as the difference between the price (proceeds from the sale) and accounting (explicit) costs (Figure 9),
4) economic profit, which takes into account imputed, opportunity costs. Usually, economic profit is less than accounting profit by the amount of uncompensated own costs of the entrepreneur, not included in the cost, which sometimes include lost opportunities (Figure 9).
Economic profit- the difference between income and economic costs, including, along with total costs, opportunity (imputed) costs. It can also be calculated as the difference between the accounting and normal profit of the entrepreneur.
The economic cost element is normal profit. This is a normal reward that keeps an entrepreneur in this field of activity. If it is not provided, the entrepreneur will change this activity or prefer wages to profit.
Figure 9- Differences between economic and accounting approaches to costs and profits.
PS: explicit - explicit costs
implicit - implicit costs, costs of missed opportunities.
A positive value of economic profit shows that the company has earned more than is required to cover the cost of the resources used, therefore, additional value has been created for investors, founders.
In the case of the opposite situation, this indicates that the organization was unable to cover the cost of using the attracted resources. Here the option of exit of the enterprise from the market is considered.
Lack of economic profit can cause capital outflow from the enterprise. Zero economic profit is a consequence of a static economy and free competition in its purest form.
From the point of view of evaluating the effectiveness, the indicator of economic profit allows you to get a more complete, in comparison with the indicator of accounting profit, idea of the efficiency of the use of existing assets by the enterprise, due to the fact that it compares financial results received by a particular enterprise, with a result that will provide him with a real preservation of invested funds. Therefore, the indicator of economic profit is more capacious and useful in making a decision by investors about their actions in relation to the company's securities.
There are the following principles of profit maximization:
1 approach. - Comparison of gross income and gross costs for each volume of production.
The following situations are possible:
a) gross income is greater than total costs
The firm has an economic profit and can increase production up to a critical point: TR=TC;
b) gross income is less than total costs
The company is profitable. Its goal is to minimize losses. This is possible under the following conditions:
– if revenue exceeds variable costs: TR>TVC, then the firm can continue to operate in the short run. Revenue provides reimbursement variable costs and parts of fixed costs;
- if at all volumes of production the losses exceed the losses of fixed costs, then the company is bankrupt. The firm should minimize losses by stopping production.
Approach 2 - Comparison of marginal revenue and marginal cost.
The following situations are possible here.
entrepreneurship labor capital land
The phenomenon of entrepreneurship acts as an integral attribute of a market economy. In economic theory, the concept of "entrepreneur" appeared in the XVIII century. and often associated with the concept of "owner". At its origins was the English economist R. Cantillon, who first introduced the term "entrepreneur" into economic theory. According to Cantillon, an entrepreneur is a person with uncertain, non-fixed income (a peasant, an artisan, a merchant, a robber, a beggar, etc.). He buys other people's goods at a known price, and sells his own at a price unknown to him. It follows that risk is the main distinguishing feature of the entrepreneur, and his main economic function is to bring supply into line with demand in various commodity markets.
To characterize entrepreneurship as economic category the central problem is the establishment of its subjects and objects. Business entities can be, first of all, private individuals (organizers of sole, family, as well as larger production). The activities of such entrepreneurs are carried out both on the basis of their own labor and with the involvement of hired workers. Entrepreneurial activity can also be carried out by a group of persons linked by contractual relations and economic interests. The subjects of collective entrepreneurship are joint-stock companies, rental collectives, cooperatives, etc. In some cases, the state represented by its relevant bodies is also referred to as business entities. Thus, in a market economy, there are three forms of entrepreneurial activity: state, collective, private, each of which finds its "niche" in the economic system.
The object of entrepreneurship is the implementation of the 1 most efficient combination of factors of production in order to maximize income. Entrepreneurs combine resources to produce a new good unknown to consumers; discovery of new production methods (technologies) and commercial use of existing goods; development of a new market; development of a new source of raw materials; carrying out reorganization in the industry to create their own monopoly or undermine someone else's.
For entrepreneurship, as a method of managing the economy, the main condition is the autonomy and independence of economic entities, the presence of a certain set of freedoms and rights. The independence of the entrepreneur should be understood in the sense that there is no governing body, indicating what to produce, how much to spend, to whom and at what price to sell, etc. But the entrepreneur is always dependent on the market, on the dynamics of supply and demand, on the price level, i. relations.
The second condition for entrepreneurship is responsibility for the decisions made, their consequences and the risk associated with it. Risk is always associated with uncertainty and unpredictability. Even the most careful calculation and forecast cannot eliminate the unpredictability factor; it is a constant companion of entrepreneurial activity.
The third sign of entrepreneurship is the focus on achieving commercial success, the desire to increase profits.
Entrepreneurship as a special type of economic thinking is characterized by a set of original views and approaches to decision-making that are implemented in practice. The personality of the entrepreneur plays a central role here. Entrepreneurship is not an occupation, but a mindset and a property of nature. Production function, the concept of diminishing productivity of production factors, theory ultimate performance.
Having considered the factors of production, we now proceed to analyze the process of production itself as the interaction of factors of production. The problems associated with the production of products can be divided into three levels:
- 1) the entrepreneur may be faced with the question of how to produce a given quantity of products at a particular enterprise. These problems relate to the issues of short-term minimization of production costs;
- 2) the entrepreneur can decide on the production of the optimal, i.e. bringing the greatest profit, the number of products at a particular enterprise. These questions are about short-term profit maximization;
- 3) the entrepreneur may be faced with the task of finding out the most optimal size of the enterprise: such questions relate to long-term profit maximization.
There is no doubt that the production of products requires the interaction of all factors of production, and none of them taken separately is capable of producing a product and generating income. However, it is also impossible to determine exactly how much a product owes its creation to one or another factor of production. Indeed, in the process of production, factors continuously interact with each other, complement, and sometimes replace each other.
In the case of a specific production, the entrepreneur is always interested in the question of what the output will be if a given number of production factors participate in the production process. At a certain stage in the development of technology and labor productivity, given the costs of factors of production, a certain maximum output can be achieved. The relationship between the number of factors of production used and the maximum possible output is called the production function. The production function is a technical ratio that reflects the relationship between the total cost of production factors and the maximum output. In the language of mathematics, it can be written as follows:
Y = f (a1, a2…an),
where Y is the number of products produced; a1, a2…an are factors of production.
The demand for a factor of production depends on its marginal productivity. The marginal productivity of a factor is the increase in total output with an increase in this factor by one. Imagine a weaving factory where, according to technology, one weaver serves ten looms. However, you can try to increase the number of machines, leaving the same number of weavers. Of course, the growth of the machine park will lead to an increase in output, but the weaver will not be able to serve twelve machines as well as ten, and fifteen as well as twelve. Therefore, despite the overall increase in production, the increase in output from each subsequent machine will be less than from the previous one. The opposite situation can also be imagined: without increasing the number of looms, increase the number of weavers. Then each weaver will serve fewer machines, and she will do it better, although the productivity of the machines is limited, so the output per weaver will be reduced.
This example brings us to an important conclusion: at a certain level of knowledge and technology, an increase in the investment of one factor of production, with the number of other factors unchanged, leads to a decreasing productivity of this factor of production (Fig. 1).
The graph in fig. Figure 1 illustrates a situation where one factor is variable (labor) and the other is constant (capital, in this case machines). Initially, the marginal (additional) product (MP) has a certain tendency to increase - after all, two or three weavers will serve the machines better than one weaver. But as the hiring of women workers increases (with the machine park unchanged), the marginal product will begin to decrease, since an increasing amount of the variable factor (labor) will be combined with an unchanged amount of capital. The hiring of female workers will continue up to a certain limit. This limit is the prevailing level of the market price of labor, i.e. wages. This level will tell the entrepreneur that it is necessary to stop hiring on that worker whose marginal product in monetary terms is exactly equal to wages. In this case, this is the number of workers in the amount of n people. Ultimate product n female workers (it is shaded) corresponds to wages (W). The marginal productivity of the nth worker is a measure of the contribution of labor (L) to the production of a product.
Let us assume that the price of a unit of output is $2, and the current level of wages in this industry is $600. Then (in conditions of perfect competition in the labor market) only when hiring the 4th worker will the following rule be observed:
i.e., in our example, the MRP is $600 ($300x2), which corresponds to a wage of $600.
The concept of marginal productivity helps to solve the problem of minimizing production costs when two factors are variables - both labor and capital. To find the optimal combination of machines and weavers in the factory in our example, it is necessary to compare the physical volume of the marginal product of labor with the price of labor, and the physical volume of the marginal product of the machine with the price of the machine. It is advisable to replace one factor of production with another until the physical volume of the marginal product of the factor of production is proportional to the price of this factor:
Rational economic behavior assumes that an "expensive" factor of production will be replaced by a "cheap" one. The given equality shows the limits of this substitution.
Let's give an example of a graphic image production function and the law of substitution of factors of production. Suppose that 100 units of some product can be produced using various combinations of labor and capital, with a wage of 1 worker of $2 and a unit cost of capital of $3. Let's write down all the data we know in the table:
An example of a combination of factors in a production function
Any combination of factors of production, for example, 6K and 1L, 3K and 2L, 2K and 3L, 1K and 6L will provide the same physical volume of production. But what combination will be the cheapest for an entrepreneur? Given the data in this table, Fig. 2 we will construct an equal product curve, or a production indifference curve (isoquant). All points of this curve A, B, C, D show a different combination of factors of production for the production of 100 units of output.
Isocosts are constructed as follows. Let us assume that the price of a unit of capital is $3 and that of a unit of labor is $2, as previously assumed. If the entrepreneur's entire budget is $3, then by spending all the money on capital alone, he can buy 1 unit. this factor. If he spends all the money only on labor, he will be able to acquire 1.5 units. labor. Now you can connect two points: one of them lies on the y-axis, i.e. 1 unit. capital, the other - on the x-axis, i.e. 1.5 units. labor. This line is the isocost of $3. Each point on this line shows a different combination of K and L, but the total cost will be the same, $3.
Now in fig. 4 is compatible with an equal product curve with multiple equal cost lines. At point C, where the equal product curve touches (but does not intersect) one of the equal cost lines, the cost of production will be minimal. Thus, if the price of a unit of capital is $3 and the price of a unit of labor is $2, the optimal combination of physical units of capital and labor will be as follows: 2 units of capital and 3 units of labor. The indifference curve touched exactly the isocost at point C, which is $12 (2Kx3 dollars) + (3Lx2 dollars) = $12. Any other combination of factors of production will cost more, for example, 6K and 1L.
The entrepreneur is concerned not only with the issue of minimizing costs, but also with the issue of maximizing profits. Since different quantities of products can be produced at the lowest cost, the question arises: what volume of products will bring the maximum profit? And what combination of factors of production will provide the maximum profit?
The answer to these questions is easy to give, remembering the rule for the use of resources (in our example, hiring labor). The firm receives the maximum profit if it involves in production such a number of workers that ensures the equality of MRP (labor) and W, where W is the price of labor, or wages. This value can also be denoted as P L (labor price).
The same principle is preserved when additional units of capital are involved in production, i.e. MRP (capital) = Pc, where the symbol Pc denotes the price of capital.
So, the maximum profit will be provided under the condition:
This equation expresses the following regularity: including in production an additional amount of land or labor, purchasing machinery, equipment, raw materials, an entrepreneur must adhere to the rule to maximize profits: income from the marginal product received at the expense of additional investment of any factor of production must equal the market price of that factor.
Compliance with this rule indicates that production is carried out in an efficient manner and there are no losses in the use of production factors. In this regard, in positive economic theory, the concept of labor exploitation does not exist, since the price of labor is equal to the income from the marginal product of labor.
Entrepreneur's profit
Entrepreneurship is an essential attribute of a market economy. Although the history of entrepreneurship goes back centuries, its modern understanding was formed during the formation and development of capitalism, in which free enterprise serves as the basis and source of prosperity. But only at the turn of the XIX and XX centuries. economists have recognized the crucial importance of this factor of production for economic progress. Alfred Marshall added to the three classical factors of production - labor, capital and land - the fourth - organization , and Joseph Schumpeter in his book "The Theory of Economic Development" gave this factor its modern name - entrepreneurship.
Schumpeter called an entrepreneur an organizer of production who paves new paths, implements new combinations: "Being an entrepreneur means doing not what others do ... and not in the way others do."
J. Schumpeter attributed to the functions of an entrepreneur:
1) the creation of a new, yet unfamiliar to the consumer material good or a former good, but with new qualities;
2) the introduction of a new method of production that has not yet been used in this industry;
3) the conquest of a new market or the wider use of the former;
4) the use of a new type of raw material or semi-finished products;
5) the introduction of a new organization of business, for example, a monopoly, or, conversely, overcoming it.
Struggling with the routine, carrying out the implementation of innovations and thereby ensuring economic growth, the entrepreneur becomes, according to Schumpeter, "a creative destroyer."
The object of entrepreneurship is the implementation of the most efficient combination of factors of production in order to maximize income. The creation of all kinds of new ways of combining economic resources, according to J. Schumpeter, is main task entrepreneur and distinguishes him from the ordinary business executive.
In modern literature, it is customary to distinguish three functions of an entrepreneur.
The first function is resource. Any economic activity requires objective factors (means of production) and subjective, personal factors (workers with sufficient knowledge and skills).
The second function is organizational. Its essence is to ensure such a combination and combination of factors of production that best contributes to the achievement of the goal.
The third function is creative, associated with organizational and economic innovation. The importance of this function for business has increased dramatically in the context of modern scientific and technological progress and the development of non-price competition.
To successfully perform these functions, a person must have certain abilities, among which there must be initiative, the ability to think independently and make decisions, perseverance in achieving goals, the ability to organize and lead a team.
The remuneration for the services of an entrepreneur is profit . In economic theory, there are several approaches to determining the sources of profit generation.
According to the first of them - accounting, profit is interpreted as the difference between the income received by the enterprise from the sale of goods and the costs incurred by it in the course of production and marketing activities. Thus, in contrast to wages, interest and rent, profit is not a kind of equilibrium price fixed in a contractual manner, but acts as a residual income. This view was not established in science immediately. Profit for a long time was not distinguished from wages and interest on capital.
Modern economists interpret profit as a reward for performing the functions of an entrepreneur, i.e. as income from the entrepreneurial factor. Thus, under the net (economic) profit in economic theory, it is customary to understand the excess over the interest rate, over rent payments, over the wage rate, over normal entrepreneurial profit. This is a kind of "entrepreneur's salary".
Profit is often viewed as a kind of payment for the risk that entrepreneurial activity involves.
Finally, profit is treated as monopoly income. A large firm can get it by setting higher prices in the market, and, consequently, by conquering this market and turning perfect competition into imperfect.
A specific estimate of profit can be made as the difference between the total income of the enterprise and its total costs. In other words, profit can be defined as net income or income excluding costs and taxes. Therefore, when statisticians calculate profits, they usually add up the total cost of a business's sales (revenues) and subtract all costs (wages, materials and energy costs, rent, interest on loans, etc.) and taxes from that.
Thus, entrepreneurial income (economic profit) consists of two parts:
1) the normal profit of the entrepreneur, which is part of the internal (opportunity) costs, which is the minimum income necessary to continue the operation of the company in the chosen field of activity;
2) the net income of the entrepreneur - the part of the profit remaining at the disposal of the entrepreneur after the payment of interest on the loan.
An important indicator characterizing the economic performance of the firm is rate of return – the share of profit in sales proceeds or the share of profit in the price of the product.
In any case, the hope of making a profit is a stimulus for technical progress, the redistribution of capital among the branches of production. The expectation of profit stimulates the most efficient distribution and use of resources, the reduction of production costs, the development of new technologies, the growth of investment in the economy, the increase in production and employment, and ultimately economic growth and better satisfaction of people's needs. As J. Schumpeter said, "without development there is no profit, without profit there is no development."
Even now, promising areas of entrepreneurship for the 21st century have been identified in Western countries. Thus, in Japan, the emphasis is on information business, in Germany, Great Britain and France - on industrial technologies (it is believed that one who is strong in industrial production, will be successful in all areas of science and technology). In the United States, the focus is on increasing the intellectual level of workers, their education and qualifications, because the technological potential of a business depends on this.
Similar information.
The phenomenon of entrepreneurship is an integral element of the market economy. In economic theory, the concept of "entrepreneur" appeared in the XVIII century. and often associated with the concept of "owner". At its origins was the English economist R. Cantillon, who first introduced the term "entrepreneur" into economic theory.
An entrepreneur is a person with uncertain, non-fixed income (a peasant, an artisan, a merchant, a beggar, etc.). He buys other people's goods at the same price, and will sell at a price unknown to him yet. It follows that risk is the main distinguishing feature of the entrepreneur, and his main economic function is to bring supply into line with demand in various product markets. A. Smith also characterized the entrepreneur as a person who takes economic risks in order to implement his commercial ideas in order to make a profit. He himself plans and organizes production, disposes of its results.
The French economist J. B. Say described in some detail the specific properties of the entrepreneur and the nature of his income, part of which is a payment for his rare entrepreneurial abilities.
A major contribution to the development of the theory of entrepreneurship was made by the German economist W. Sombart and the Austrian economist J. Schumpeter. According to Sombart, an entrepreneur is a "conqueror" (willingness to take risks, spiritual freedom, wealth of ideas, will and perseverance), an "organizer" (the ability to connect many people to work together) and a "merchant" (the ability to convince people to buy goods, arouse their interest to gain trust). Describing the goals of an entrepreneur, Sombart highlights the desire for prosperity and growth of his business as the main among them, and the growth of profits as a subordinate, since prosperity is impossible without it.
J. Schumpeter calls an entrepreneur a person who undertakes the implementation of new combinations of factors of production and thereby ensures economic development. At the same time, Schumpeter believed that an entrepreneur is not necessarily the owner of production, an individual capitalist - he can also be the manager of a bank or a joint-stock company.
The association in one person of the owner and the entrepreneur began to collapse just in the period of the appearance of credit
The separation of entrepreneurship from ownership is especially evident in joint-stock companies. In the conditions of a joint-stock, corporate economy, property as a legal fact loses its administrative functions. Power in production moves from the owner to the organizer. Instead of real physical objects, with which the notion of property has traditionally been associated, the shareholder owns only a piece of paper, the title of ownership. Over the entrepreneurs themselves, he, the owner of the shares, has a very conditional control. However, the shareholder is not responsible for the performance of the joint stock company. This is the responsibility of managers.
Thus, the development of credit relations and the transfer of national wealth from the form of individual private property to the form of corporate ownership entails the separation of property from disposal - entrepreneurship.
So, entrepreneurship is basically not a function of only the owner, it can be attended by persons who are not directly owners.
What is entrepreneurship in terms of economic certainty? In the scientific literature, it is proposed to consider entrepreneurship in three aspects:
1) as an economic concept;
2) as a method of managing;
3) as a type of economic thinking.
To characterize entrepreneurship as economic concept the central problem is the establishment of its subjects and objects. The subjects of entrepreneurship can be, first of all, private individuals (organizers of sole, family, and also larger production). The activities of such entrepreneurs are carried out both on the basis of their own labor and with the involvement of hired workers. Entrepreneurial activity can also be carried out by a group of persons linked by contractual relations and economic interests. The subjects of collective entrepreneurship are: 1) joint-stock companies; 2) rental collectives; 3) cooperatives, etc. In some cases, business entities also include the state represented by its relevant bodies. In a market economy, there are three forms of entrepreneurial activity:
1) state;
2) collective;
3) private, each of which finds its "niche" in the economic system.
The object of entrepreneurship is the implementation of the most efficient combination of factors of production in order to maximize. All sorts of new ways of combining production resources are the main business of the entrepreneur and distinguish him from the ordinary business executive. Entrepreneurs combine resources in order to produce a new good unknown to consumers; discovery of new production methods (technologies) and commercial use of existing goods; development of a new market; development of a new source of raw materials; carrying out reorganization in the industry to create their own monopoly or undermine someone else's.
The main condition for entrepreneurship as a method of managing the economy is the autonomy and independence of economic entities, i.e. they have a certain set of freedoms and rights - at the choice of the type of entrepreneurial activity; for the formation production program; on the choice of funding sources; access to resources; for the sale of products; setting prices for it; profit management, etc.
The independence of the entrepreneur should be understood in the sense that there is no governing body over him, indicating what to produce, how much to spend, to whom and at what price to sell, etc. But the entrepreneur is always dependent on the market, on the dynamics of supply and demand, on the level, i.e. from the existing system of commodity-money relations.
The second condition for entrepreneurship is responsibility for the decisions made, their consequences and the risk associated with it. Risk is always associated with uncertainty and unpredictability. Even the most careful calculation and forecast cannot eliminate the factor of unpredictability in entrepreneurial activity.
The third sign of entrepreneurship is the focus on achieving commercial success, the desire to increase profits. But this goal is not the only one modern business. The activities of many business structures go beyond purely economic tasks, they take part in solving social problems of society, donate their funds to the development of culture, education, health, environmental protection, etc.
Describing entrepreneurship as a special type of economic thinking, it should be noted that the personality of the entrepreneur plays a central role in entrepreneurial activity. Entrepreneurship is not an occupation, but a mindset and a property of nature. To be an entrepreneur is not to do what others do; you need to have a special gift of imagination; the gift of foresight; constantly resist the pressure of routine. You have to be able to find something new and use its possibilities. You need to be able to take risks, overcome and act not depending on the ongoing processes, but to determine these processes yourself.
An entrepreneur in his activity is driven by the will to win, the desire to fight, the special creative nature of his work, the possibility of earning income.
As for the intellect of an entrepreneur, it must be selective, i.e. is aimed at a narrow range of phenomena that the entrepreneur studies thoroughly.
In general, entrepreneurship should include elements of economic art, economic and organizational creativity, free manifestation of initiative, innovation, readiness for risk, etc. for the sake of making a profit. And this is quite natural, since the management and organization of production in the conditions of the revival of a market, competitive economy, individual inclinations, skill, and estimate play a crucial role.
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