CMA Foundation · Fundamentals of Business Economics and Management · Theory of Production
Which of the following correctly describes the reward to the factor of production called 'entrepreneur' in a Jaipur handicraft business?
The entrepreneur's reward is profit, the residual left after paying rent, wages and interest. It compensates for organising the other factors and bearing the risk of uncertainty. Rent belongs to land, interest to capital, and wages to labour.
- ARent, as the payment for use of land
- BInterest, as the payment for use of capital
- CWages, as the payment for physical work
- DProfit, as the residual reward for organising and risk-bearingCorrect
Explanation
Land earns rent, capital earns interest, labour earns wages and the entrepreneur, who organises production and bears uncertainty, earns profit as a residual. The other options name the rewards of the other factors.
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