CMA Foundation · Fundamentals of Business Economics and Management · Means of Production
Ramesh sets up a bakery in Pune. He spends months estimating demand, fixes the price at which his products will sell, and then buys ingredients at today's prices, knowing that the sales will happen only later. Which entrepreneurial function does his act of producing for an uncertain future market primarily illustrate?
Ramesh's act of buying inputs and producing now for sales that will occur later illustrates uncertainty bearing. Since future demand and prices are unknown and cannot be insured, the entrepreneur accepts this risk, and profit is regarded as the reward for it.
- AUncertainty bearingCorrect
- BWage payment to labour
- CDepreciation of capital
- DRent payment to landlord
Explanation
Production is carried out in anticipation of future demand, so the outcome is unknown when the costs are incurred. Bearing this non-insurable uncertainty is the distinctive function of the entrepreneur. Wages, rent and depreciation are costs or payments, not entrepreneurial functions.
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