TOPIC:               THEORY OF PRODUCTION

MEANING OF PRODUCTION

Production can be defined as the transformation of raw materials into finished goods and the distribution and provision of goods and services in order to satisfy human wants.

Production also refers to as creation of utility, while is the ability of any commodity or services to satisfy human want. Production is not regarded as complete until what is produced reached the final consumers.

TYPES OF GOODS

1. Consumer Goods: These are goods and services that can satisfy the consumer’s immediate wants. These goods do not need further process of producing for their use by the consumer e.g. Milk, Bread, Television, Radio, the services of a teacher, lawyers Barber, etc
2. Producer or capital Good: These are goods and services meant for production of further goods and services. E.g Machines, Radio materials.

 

TYPES OF PRODUCTION

1. DIRECT PRODUCTION: Direct production is the type of production in which an individual produces goods and services only for family use or consumption and not for sale. For example, a farmer who plants maize and yam for himself and family.
2. INDIRECT PRODUCTION: Indirect production is the types of production in which goods and services are produced in large scale, mainly for sales or exchange for other needs.

STAGES OF PRODUCTION

1. PRIMARY PRODUCTION: This involves the extraction of raw material from the soil or sea e.g mining, farming, fishing, etc.
2. SECONDARY PRODUCTION; This is a stage where raw materials are processed and transformed into finished good, i.e utility is added to the raw materials of the primary production.
3. TERTIARY PRODUCTION: this is the stage where the goods and services made available at the two earlier stages are taken to those who are in need of them i.e tertiary production is concerned with the provision of commercial and professional services to the people.

 

FACTORS OF PRODUCTION

1. LAND: Land as a factor of production is a free gift of nature and it is fixed. Land in economics does not only include land surface of the earth but all other free gifts of nature or natural resources like forest, mineral resources, rivers, oceans, atmosphere etc. the reward for Land is RENT.
2. LABOUR: Labour refers to all human effort which may be physical or mental, skilled, or unskilled scientific or artistic used in the productive process, usually for a reward. In other words, labour refers to both physical and mental efforts of man directed to production. It reward is WAGE or SALARY.
3. CAPITAL: Capital can be defined as wealth reserved or set aside for the production of more wealth. They are also referred to as investment goods or producer goods. Example of capital a machine tools, factory, buildings, raw materials, fuel, money etc. the reward for capital is INTEREST
4. THE ENTREPRENEUR: An entrepreneur can be defined as the factor of production that co – ordinates and organises other factor of production (land and capital) in order to produce goods and services. The reward for entrepreneur is PROFIT OR LOST

 

FACTORS THAT DETERMINE THE VOLUME OF PRODUCTION

1. The sizes of market
2. Level of technical knowledge
3. Amount of capital
4. Availability of raw materials
5. Storage facilities
6. Efficiency in the use of factors of production
7. Extent of development of infrastructural facilities

DIVISION OF LABOUR

Division of labour may be defined as a system of breaking down production processes into different stages so that each stage is undertaken or handled by an individual. This division of production processes will depend on the type, size of industry and goods produced.

It should be known that in modern times, division of labour is more applicable in an industrial economy than in agricultural economy. Example: Textile industry, which is subdivided into, spinning, weaving and dyeing, warping, beaming, drafting and denting.

SPECIALIZATION

Specialization may be defined as the act of an individual or a firm or a country concentrating its resources and efforts in the production of relatively few commodities in which it has the greatest advantage over others. There is specialization in division of labour and division of labour is the result of specialization. The two are interwoven. The major aim of division of labour and specialization is to increase productivity i.e. output.

Types of Specialization

1. Specialization by products: This is when a firm, individual or government concentrates in the production of a particular commodity.
2. Specialization by process: This is the concentration of a firm or individual or government on an aspect or stage of production process
3. Territorial or geographical specialization: This is the concentration of a geographical area or territorial area on the production of a product.
4. Sex specialization: This is also known as custom or race or tradition specialization. Here, a kind of production is being carried out by the sex i.e. male or female

ADVANTAGES AND DISADVANTAGES OF DIVISION OF LABOUR

Advantages

1. Time saving: – The time which could have been spent on moving from one stage to another would be saved if there is division of labour.
2. Increase in production: – There is greater productivity because various experts along the production process work together.
3. They reduce fatigue :- A worker does not have to strain himself because he performs fractional part of the production.
4. They increase the skill of worker:- Since people learn by experience, performing the same task makes a worker more skillful in that area.
5. 5. Creation of employment opportunities:- It helps in the employment of experts to handle various stages of production.

Disadvantages

1. They make work monotonous:- The job becomes boring to a worker as a result of performing the same task repeatedly.
2. They bring about decline in craftsmanship:- The use of machine does not give room for workers to use their skills and talents in the production of goods. They solely depend on machine.
3. The use of machines reduces employment opportunities:- In division of labour, machine replaces human being. Machines are usually used with few workers; this tends to reduce the employment level.
4. They bring about immobility of labour :- A worker stays on a single job for a long time and makes it impossible for workers to move.

LIMITATIONS OR FACTORS THAT ENCOURAGE OR DISCOURAGE DIVISION OF LABOUR

1. The size of the market:- Market means the extent to which goods and services are demanded. Large market will encourage division of labour and small market will discourage division of labour.
2. The availability of labour:- Non-availability of qualified labour makes division of labour impracticable even if it is essential.
3. The nature of the product:- The nature of some products does not require division of labour. Examples are barbing, driving, farming, etc
4. Availability of capital:- If there is inadequate capital, it will be difficult to employ experts at different stages of production.

SCALE OF PRODUCTION/ ECONOMIES OF SCALE

By economies of scale or scale of production, we mean the growth of a firm or an industry resulting from expansion of the volume of productive capacity which leads to increase in output and decrease in its cost of production per unit of output.

ADVANTAGES OF INTERNAL ECONOMIES OF LARGE SCALE PRODUCTION OR ADVANTAGES A LARGE FIRM HAS OVER A SMALL FIRM

1. Technological or technical economies: – Large firm can afford to use advanced machine, employ more workers and apply division of labour. This will lead to increase in output at a reduced cost per unit of output.
2. Marketing economies:- A large scale firm can afford to buy raw-materials in bulk and save packing and transport cost. They can also advertise on a large scale and at cheaper rate more than small firms.
3. Research economies:- A large firms can afford to employ competent researchers to improve the quality of their products at reduced cost.

DISADVANTAGES OF INTERNAL ECONOMIES OF LARGE SCALE PRODUCTION OR ADVANTAGES OF SMALL SCALE PRODUCTION OR ADVANTAGES OF SMALL- SCALE FIRM OVER LARGE –SCALE FIRM

1. The relationship between employers and employees of a large firm is more impersonal than a small scale firm
2. It is easier for a small-scale firm to adjust to business changes than large-scale firm
3. A large-scale firm has increase business risks more than a small-scale firm
4. It requires more capital to establish, run and finance a large-scale firm than a small-scale firm