1 Types of Production

  1. Primary Production: Extraction of raw materials from the natural abode, e.g Mining, farming, etc.
  2. Secondary Production: Processing and conversion of raw materials into finished goods. Manufacturing and construction are involved.
  3. Tertiary Production: Distribution of goods (trade and aids to trade) and rendering of services (direct and indirect services).

2 Factors of Production

  1. Land: Gift of nature used in production. It includes minerals, rivers, vegetation, rocks, etc.

    Characteristics of Land

    1. It is a gift of nature
    2. It is fixed supply
    3. It is subject to the law of diminishing returns
    4. Geographically, land is immobile
    5. It is heterogeneous.
  2. Labour: Human efforts (mental or physical) used in process.

    Characteristics of Labour

    1. It is a human factor. It directs other factors
    2. It can improve through education and training
    3. It varies in quantity
    4. It is mobile both geographically and occupationally
    5. It is perishable
  3. Capital: Man-made assets used in the production process or wealth set aside for the production of further wealth.

    Characteristics of Capital

    1. It is man-made
    2. It takes different forms
    3. It may be mobile (e.g cash) or immobile (e.g buildings)


    Entrepreneurship: An entrepreneur is a person who organises, controls and coordinates other factors (land and capital) to obtain maximum production at minimum costs, with a view to making profit.


    Functions of the Entrepreneur

    1. Risk-bearing
    2. Provision of initial capital
    3. Making policies/strategic decisions
    4. Controlling and coordinating other factors
    5. Remunerating other factors

    Reward for Factors of Production

    1. Land  - rent
    2. Labour  - wages
    3. Capital  - interest
    4. Entrepreneur  - profit

3 Specialisation & Division of Labour

  1. Specialisation: The act of engaging or concentrating in one line/stage of production leading to expertise, mass-production and ease of operation.
  2. Division of Labour: The act of breaking down the production process into segment/stage so that each segment/stage can be handled by an individual or a group of individuals.

    Advantages of Division Labour

    1. It increases output/productivity
    2. It saves time
    3. Lower unit cost
    4. Economy in the use of tools
    5. Development of greater skills
    6. Encourages/promotes mechanisation
    7. Less fatigue

    Disadvantages of Division of Labour

    1. Leads to monotony
    2. Causes unemployment
    3. Loss of craftsmanship
    4. Creates overdependent and instability
    5. Greater risk/hazard at work

    Limitations to Division of Labour

    1. Size of the market
    2. Level of technology
    3. Nature of goods, e.g seasonal goods
    4. Availability of factor inputs
    5. Special talents/creativity

4 Scale Of Production

Production can be either on a small scale or on a large scale. The following factors determine the scale of production:

  1. Availability of capital
  2. Level of technology
  3. Level of experience
  4. Level of demand or size of the market
  5. Nature of commodity
  6. Government policy

 

Economies of Scale: These are the advantages which a firm/industry realise from production expansion. Advantages of Large Scale Production. These include:

  1. Internal Economies of Scale: These are the cost-saving advantages a firm enjoys internally as its size of production increases.
    a. Financial advantages
    b.Technical advantages
    c. Research advantages
    d. Commercial/market advantages
    e. Risk-bearing advantage
    f.  Welfare advantage
    g. Administrative/managerial advantages.
  2. External Economies of Scale: These are the benefits which an industry enjoys as it expands.
    a. Specialisation
    b. Growth of subsidiary/complementary firms
    c. Improved technology
    d. Infrastructural improvement
    e. Availability of Labour.

    Diseconomies of scale (Disadvantages of Large scale production)

    1. Inefficient management
    2. Bureaucracy and red-tapism
    3. Lack of personal touch with workers/customers
    4. Greater risk and liability
    5. Waste of resources (e.g research failure)
    6. High overhead cost
    7. Diminishing returns

     

    Why Small Firms Survive in West Africa

    1. Small capital requirements
    2. Simple organizations and management
    3. Fast decision making
    4. Business initiative due to personal interest
    5. Personal attention to customers
    6. Close touch with workers
    7. Low overhead cost
    8. Combination with other jobs/businesses

5 Production Possibility Curve/Frontier/Boundary (PPC) or (PPF) or (PPB)

PPC is a curve or graph showing the combination of two commodities that can be produced, given the available resources and state of technology

Basic Assumptions of PPC

  1. Only two commodities (consumer goods (x) and capital goods (y) are produced in various proportions in the economy.
  2. The supply of input factors are fixed
  3. There is full employment of resources
  4. The production period involved is short
  5. Level of technology is constant

Relationship between Production Possibility Curve and The Concept of Opportunity Cost:

Opportunity cost is the best alternative forgone. It is closely related to the concept of production possibility curve in that each combination involves the use of resources and any shift from one combination to the other involves a shift in resources. In addition, the PPC slopes downwards from left to right, reflecting that opportunity cost is involved in any combination.

Importance or Uses of PPC

  1. Improves technical progress
  2. Economic growth
  3. Economic efficiency
  4. To reduce unemployment rate

Note: The slope of the PPC is sometimes called Marginal Rate of Transformation

6 Economic Rent

Economic rent is any payment in excess of what is sufficient to induce a factor of production e.g if a worker is paid over the average wage rate.

7 Production Concepts

  1. Production Function: This is the technical relationship between production factor inputs and outputs. It shows the maximum quantity of output (q) that can be obtained from the quantities of inputs (Labour & Capital) used in the production process.
    ∴ q = f (L, k) where q = output, L = labour, k = capital.
  2. Short Run Production Concept: The short-run production period is one in which there is at least one fixed factor while others are variable factors.
  • Total Product: This is the total amount of the commodity that can be produced using a fixed amount of factor inputs at a given period.
  • Average Product: This is the output per unit of input.
  • Marginal Product: This is the extra unit of output produced resulting from using an additional unit of variable factor input.
  • Law of Diminishing Returns: This is otherwise known as the “Law of Variable Proportions”. The law of diminishing returns states that “As more and more units of a variable factor are used with a given quantity of fixed factors, the average and marginal product of the variable factor will eventually fall.''

Note: When law of diminishing returns is expressed with reference to the eventual fall of the marginal products only, it is considered as Law of Diminishing Marginal Productivity.

8 Business Organisations / Enterprises

Business organisations are enterprises established by individuals, group of individuals or a government for the purpose of providing goods and services to satisfy human wants.

9 Types of Business Enterprises I

  • Sole proprietorship / Sole Trader: A business enterprise owned, managed, and controlled by a single individual. It is also referred to as a one-man business.
    Features
    a. Owned, managed, and controlled by a single individual
    b. Initial capital provided by the sole proprietor
    c. Common in retail trade and artisanship
    d. Simple organization structure
    e. The proprietor bears the risk and takes the profit

    Advantages
    a. Easy to set up due to the absence of formality
    b. Decision making is quick
    c. Secrecy of business affairs
    d. He requires small capital to start
    e. He enjoys profit alone
    f. Easy to manage efficiently.

    Disadvantages
    a. His liability is unlimited
    b. Expansion difficult due to small capital
    c. He cannot face competition due to a lack of economies of scale. He bears all the losses
    e. Lack of continuity after the proprietor's death
    f. He finds it difficult to engage the services of experts and professionals.


  • Partnership: A business enterprises in which two or twenty persons combine their resources to set up and run with a view to making profit.

    Types of Partnership:
    a. Ordinary Partnership: When all partners have unlimited liability.
    b. Limited Partnership: Where most partners have limited liability.

    Advantages of Partnership
    a. Large capital provided by partners
    b. Easy to set up due to lack of formalities
    c. Specialization among partners enhances productivity
    d. There is the privacy of affairs
    e. Risks are spread among partners
    f. There is continuity
    g. Sound decision making.

    Disadvantages of Partnerships
    a. Unlimited liability
    b. Insufficient capital may hinder expansion
    c. The disagreement between partners may mar the progress of the business.
    d. Decision making may be slow.
    e. The death of an active partner may lead to the dissolution of the business.

10 Specialisation

The act of engaging or concentrating in one line/stage of production leading to expertise, mass-production and ease of operation.