"The entrepreneurial decision is an investment decision that augments the productive capacity of the economy".

Identify the function of entrepreneur.

Capital formation

The correct answer is Option (2)- Capital formation.

The function of an entrepreneur, as indicated in the statement, is primarily related to fostering economic growth and development. Among the options provided, the most relevant function of an entrepreneur highlighted in the statement is Capital formation.

The entrepreneurial decision, in effect, is an investment decision that augments the productive capacity of the economy and hence results in capital formation. In fact, GDP and capital formation are related to each other via Capital Output Ratio (COR); more precisely Incremental Capital Output Ratio (ICOR) that measures the percentage increase in capital formation required obtaining a percentage increase in GDP.

OTHER OPTIONS

• Contribution to GDP : Increase in the Gross Domestic Product or GDP is the most common definition of economic development. Entrepreneurs generate income via organisation of production be it agriculture, manufacturing or services.

• Generation of Employment : Every new business is a source of employment to people with different abilities, skills and qualifications. As such entrepreneurship becomes a source of livelihood to those who do neither have capital to earn interest on nor have the land to earn rent.

• Generation of Business opportunities : Every new business creates opportunities for the suppliers of inputs (this is referred to as backward linkages) and the marketers of the output (what is referred to as forward linkages).