CA Foundation · Business Economics · Theory of Production and Cost
In the economic theory of production, which one of the following is classified as the factor of production that receives 'profit' as its reward?
The entrepreneur receives profit. Land earns rent, labour earns wages and capital earns interest. The entrepreneur organises the other factors and bears business risk, so the residual income left after paying all other factors is profit.
- ALand
- BLabour
- CCapital
- DEntrepreneurCorrect
Explanation
The four factors of production and their rewards are: land earns rent, labour earns wages, capital earns interest, and the entrepreneur earns profit. The entrepreneur organises production and bears the risk of uncertainty, so profit is the residual reward. Capital's reward is interest, not profit.
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