Production and
productivity
Production
Production is the creation of goods and
services.
Factors of productions
These are all resources required to produce
goods and services
These are
1. Land
2. Labour
3. capital
4. entrepreneurship
Land
This refers to all
natural resources
provided free of charge
by nature.
Examples
a) Forests
b) Rivers
c) Oceans
d) Minerals
e) Wild life
Labour
This refers to mental or
physical human efforts required
to produce goods or services.
Types of labour
a) Skilled labour- that which
has special skills and
training e.g. doctors
b) Unskilled labour- this is
that which lacks any special
skills or training. E.g. tea
pickers
c) Mental labour- this involves
more use of brains/mental
energy
d) Physical labour- this
involves more use of
physical efforts
Capital
This refers to the manmade
resources used in producing other
goods.
Types of capital;
a) Working capital
These are the short term assets used in
production such as raw materials.
b) Fixed capital
These the long term assets used in
production. E.g. factories, machineries,
vehicles etc.
Capital vs labour intensive
production
i. Capital intensive
This is where there is more use of
machines than human effort in
production.
ii. Labour intensive
This is where there is more use of
human efforts in production than
machines
Entrepreneurship
This is the factor that
organizes all the other
factors to produce goods
and services
Role of an entrepreneur
a) Comes up with new
idea
b) Organizes all factors
c) He takes all the risks
in return for a profit
Sectors of the economy
The economy can be divided into a number of sectors
depending on the kind of production activity.
1. Primary/extractive sector
This is the sector that extracts raw materials from their natural
states. This sector is the most dominant in less developed
economies because
a) It employs majority of the workers
b) It is the biggest contributor to the countries economic growth
Examples of primary sector activities
Fishing
Mining and quarrying
Lumbering(cutting wood into timber)
Farming/agriculture
Forestry
2. Secondary sector
This is the sector that converts raw materials extracted
in the primary stage into finished and semi finished
products. This sector is the most dominant in developing
economies such as China, India, Taiwan etc.
Examples of secondary sector
Car assembling
Manufacturing
Ship building
Food processing
Building and construction
3. Tertiary/service sector
This is the sector that provides support services to both
primary and secondary sectors.
This sector is the most dominant in developed economies
e.g. Uk, USA etc.
Examples of tertiary sector activities
Transport services
Banking
Insurance
Medical services
Educational services
Engineering services etc.
Note:
As countries’ economies grow, they move from primary
sector then to secondary sector then finally the tertiary
sector.
PRODUCTIVITY AND COSTS OF PRODUCTION
Productivity is the ability of a factor of
production e.g. labour to produce more.
Expected Learning outcome
By the end of the lesson you should be able
to:
a)Define productivity.
b)Explore factors affecting productivity.
How to improve productivity of
factors of production
The various factors of production of land labour
and capital can have their productivity improved
as follows.
1. Land:
the productivity of land can be improved
through:
a) use of fertilizer on infertile lands
b) Irrigation of dry lands e.g. deserts and
semi-deserts.
c) Drainage of swampy land.
d) Use better equipment e.g machinery
e) Reclamation from the sea and oceans.
Labour
The productivity of labour can be improved
through
a) Training of workers to attain new skills
b) Paying them based on the units they
produce. The more they produce the more
they earn.
c) Using more modern technologies of
production e.g. use of computers and
modern machines
Capital
Capital refers to all the assets such as
the machinery and equipment used in
production.
a) To improve the productivity of
capital we use more advanced /up-
to-date technologies such as modern
machinery
b) Increasing the quantity of machines
or equipment in production
Expected Learning outcome
By the end of the lesson you should be able
to:
a)Define total revenue, total costs, total
fixed costs, total variable costs, average
total costs and profit
b) Give examples of fixed and variable
costs
c) Identify and calculate costs revenues and
profits
Costs of production
This refers to the amount spent to
produce a good or a service.
Classification of costs
Costs can be classified into:
1. Fixed costs
2. Variable costs
Fixed costs
These are the costs that remain the same at all
levels of output.
You still pay fixed costs even when your
production is zero
Examples
Rent
Interest on loans
Salaries
Insurance
Taxes
Variable costs
Are costs that varies with the level of output
Examples:
Fuel
Raw materials
Power
Electricity bills
Water bills
Transport
Calculation of costs and profits
Total revenue is the amount of money received
from the sale of goods.
Total revenue= quantity sold (Q) x price per
unit(P)
TR=PQ
EXAMPLE:
ABC ltd sold 2,000 laptops at £ 1000 each .
Calculate the total revenue.
Total costs= fixed cost + variable cost
Example : ABC ltd had the following costs for the
year 2011
Rent £3000
Insurance £1500
Salaries £6000
Power £ 800
Cost of material £ 2,500
Interest on loans£1,200
a) Identify the fixed cost and variable cost
b) Calculate the total costs and average costs
Calculation of profits
Profits is the difference between costs and
revenues
Profits= Total revenue – Total costs
=TR-TC
Complete the table below
Out put Fixed Variable Total costs Total Profits
(Laptops costs costs revenue
)
0 1000 1000
10 1500
20 2500
30 4000
40 6000
50 9000
60 11000
70 12500
The selling price per laptop is £ 1,200.
Division and Specialisation of labour
Merzedez Benz Factory - YouTube.flv
a) In groups of 2-3 people discuss the process
and the stages involved in;
1) Baking bread
2) Dress Making
3) Admission to school
b) In all the stages above discuss the different
people/professions/occupations involved
Division and Specialisation of Labour:
Division of labour:
Is a process where a production process is
broken down into a number of stages.
Each stage of production is then assigned to a
worker or a group of workers.
Examples of division of Labour:
Car assembly is split into a number of stages
Bread making is split into several stages
Specialisation:
This is where a person concentrates on doing
the job that he/she is good at.
Examples of specialization
a doctor has trained and specialized to be a
doctor and not an engineer.
A teacher specializes in teaching
In bread making factory each stage is
assigned to an individual or group that are
good at doing it.
The industrial bread process A short introducti
on for
chilldren - YouTube.flv
GROUP WORK
In groups of 2-3 people discuss the benefits
and disadvantages of specialization and
division of labour.
Advantages of division and
specialisation of labour
1) Increases productivity of workers:
Specialist workers become quicker at
producing goods, since they do it over and
over again.
2) Time saving
The worker can concentrate on one task and it
saves time of moving from one task to another
3) Encourage talent specialization:
Each worker can concentrate on what they are
good at and build up their
expertise/knowledge in their area of
specialization.
Disadvantages of division and specialisation of labour
1) Monotony and boredom:
doing the same task over and aver again can be
boring and monotonous to the workers.
2) Specialization leads to joblessness
when a person is highly specialiased in one career
he may become jobless if there are no
employment opportunities in his/her area of
training.
example
A highly specialized bread mixer may find himself
jobless when machines are introduced in his place
as he is not trained in any other area.
