Factor of production is the inputs that are used in the production of goods or services in the attempt to make an economic profit.
The four categories are:
1) Capital 2) Labor 3) Raw materials 4) Land
Land differ from the other factors because it is a fixed location. You can’t move it.
Because in dividing up the value of the finished product among the four factors of production (Raw materials, Labor, Land, Capital), we can see that the defining characteristic of land that differentiates it from the other 3 factors is that land is fixed in location, even in the long run. If you own a parcel of land, you can never move it. You can never take it away to some other site where it might be able to earn more rent. The perspective of the residual theory of land value is that the 3 mobile factors have to get paid first, in order to keep them from running away if they don’t get paid an amount equal to what they could earn elsewhere, something that land cannot do.
The bid-rent is the maximum rent that a potential user would bid or be willing to pay, for a site or location. This bid-rent is essentially the same thing as the residual value. Each potential user of land has a bid-rent curve, which relates the user’s bid-rent to the location of the land site, showing in particular how the bid-rent changes as a function of the user’s distance from some central point.
Here the central point is the highway entrance. Use A is located at a smaller distance than site 2.Use A