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Entrepreneur or enterprise

The fourth important factor of production is the entrepreneur. An entrepreneur is a person who combines the different factors of production (land, labour, and capital) in the right proportion and initiates the process of production and also bears the risk involved in it. The entrepreneur is also called the ‘organiser’.

Functions of an entrepreneur

  • Starting a business and resource mobilisation: An entrepreneur collects the different factors of production such as land, labour and capital, and co-ordinates them in order to initiate a business enterprise. These factors of production are paid remuneration-for instance, a fixed rent for land, a fixed wage for labour and a fixed rate of interest for capital. After paying for all the factors, if any surplus remains, it goes to the entrepreneur. This is the reward that an entrepreneur gets for undertaking the risk of the business. Thus, while all the factors like land, labour and capital get fixed remuneration, the reward of an entrepreneur is not fixed. An entrepreneur may earn profits or incur losses.
  • ƒRisk and uncertainty: The success or failure of a business organization depends on the skill of the entrepreneur. An organization operates in a constantly changing environment. Thus, it depends on the ability of the entrepreneur to bear these risks. Risks can be reduced through proper planning of the activities. However, these planned actions may differ from the actual course of events. Risks are mainly classified into two types.
    • …Insurable risk: The entrepreneur can avoid these types of risks by getting the concerned items insured. Risks of fire, theft, burglary, etc., can be insured.
    • Non-insurable risk: The risk of incurring losses as a result of changes in demand or cost conditions, tastes and preference, etc. cannot be insured.
  • ƒInnovations: According to Schumpeter, the actual function of an entrepreneur is to bring innovations. Innovation, in a very broad sense, includes introduction of new production methods, utilization of new sources of raw materials, introduction of new products, opening new markets, etc. Technological progress occurs in an economy through continuous innovations. If an innovation is successful, it will be imitated by others and they will adopt the innovation after some time lag. Therefore, in the first few years, it would fetch some profits (also known as first mover advantage), but when it is adopted by others, the profits would decline.

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