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Which of the following is an example of a factor of production used by a firm?
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1. Introduction to Microeconomics
Factors of Production
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Why do business firms need financial capital?
A
To ensure that all goods produced are consumed by the government
B
To acquire resources such as land, labor, and equipment necessary for production
C
To eliminate the need for entrepreneurship in the production process
D
To increase the supply of natural resources in the economy
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Understand the role of financial capital in the production process: Financial capital refers to the funds that firms use to purchase inputs needed for production.
Recognize that business firms require resources such as land, labor, and equipment to produce goods and services.
Identify that financial capital is necessary to acquire these resources because firms need money to pay for them before production can begin.
Note that financial capital does not directly affect consumption by the government or the supply of natural resources, nor does it eliminate the need for entrepreneurship.
Conclude that the primary reason firms need financial capital is to obtain the essential inputs required to carry out production activities.
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