Explain the four factors of production. In what way are they related to the circular flow diagram? Explain the four factors of production. In what way are they related to the circular flow diagram? Solution The four factors of production are land, labor, capital and entrepreneurship. These factors are used in almost every firm to produce a commodity. The returns to these factors are rent, wages, interest and profits respectively. The land, capital, labor and entrepreneurial services are the factor inputs by the households to a firm. The households in turn gets rent, interest, wages and profits respectively from the firm..