TOPIC: FIRMS AND PRODUCTION
LEARNING OBJECTIVES:
1.
2.
3.
4.
5.
Define production
Define productivity
Define labour intensive production
Define capital intensive production
Explain the factors influencing the demand for the factors of production
1.
Define production
It is the total output of goods and services produced by a firm or industry to satisfy consumers needs and
wants.
No need to draw it.
2.
Define productivity
Productivity measures the amount of output that can be produced from a given amount of input (land, labour
and capital resources) for a given time period. It is a measure of efficiency.
Productivity= Total output/ Total input
Example: Labour productivity- is output per worker
Labour Productivity= Total output/ Number of workers
500/10=50
Strategies to increase productivity include:
• training employees to improve their skills
• Increased wages motivate workers to work harder
• Providing free health care – workers become more healthy and reduced absenteeism at work/ miss
work
•
•
Education- Workers are highly qualified and able to do the job better
Specialisation- workers become an expert- Practice makes perfect
Labour intensive production
It is a method of producing output using more of labour than other factors of production.
Example : hotel
Capital intensive production
It is a method of producing output using more of capital than other factors of production.
Example : Oil refining, car manufacturing
Explain the factors influencing the demand for the factors of production
 The demand for the finished goods
When the demand for a good rises , for example furniture, then the demand for labour like carpenters
will increase. This is because demand for labour is a derived demand.
 Price of labour
If wage rises, the demand for labour will fall . The cost of production of the firm will rise.
 Cost of capital rises
If machinery and equipment become expensive, cost of production will rise. Demand for capital will fall.
 Productivity of capital and labour
If capital is more productive than labour due to technological advances, then firm will demand more
capital. This will increase profit.
 Fall in tax /Subsidies on capital goods- machinery
When government provides subsidies on machinery, capital goods become more affordable, demand for
capital rises.
 Surplus of labour
The country has a surplus of labour, then labour is cheaper than capital. Firms demand more labour.