ORGANIZATION
OF PRODUCTION
Specialization in Production by Firms
Each person or group concentrating on doing
what they are best at doing
INDUSTRIAL SECTORS
Group of firms specializing in similar goods and
services or using similar production process.
There are 3 types of Industry
- Primary Industry : Involved in farming, mining or
any production involved in the first stage of
production for most goods and services. Eg.
Farming, mining, forestry, oil and gas extraction
etc.
- Secondary Industry : Turning unprocessed
natural resources and other unfinished products
into other goods is a process called manufacturing
and firms that engage in this activity belong to the
manufacturing or secondary sector.
- Tertiary Industry : The distribution and sales of
manufactured goods and the provision of services
to consumers is the final stage in the production
process. Firms that provide services are part of the
tertiary sector eg. Transportation, banking,
insurance.
OBJECTIVES OF FIRMS – Aims
of Production.
1. Profit Maximization
Profit = Total Revenue – Total Cost
2. Other objectives
-Charities
-Not for profit – eg corporative, mutual societies
run by members.
-Public Corporations: run by government for the
benefit of society. Eg. Singapore Power. Their
cost for running comes from tax payers.
PRODUCTIVITY OF FACTORS OF PRODUCTION
Productivity is the measure of the amount of
goods and services that can be produced from
a given amount of inputs (factors of production)
Average product
of labour
Total output per period
=
number of labour
PRODUCTIVITY OF FACTORS OF PRODUCTION
OUTPUT
LABOUR
A.PROD OF
LABOUR
100
5
100/5=20
210
7
600
60
1000
150
The following to hand up:
20,21,22,23,24,25,26
PRODUCTIVITY
RANKING
PRODUCTIVITY OF FACTORS OF PRODUCTION
The average revenue of labour is the measure
of the average contribution of each labour to
the prodction after the goods have been sold.
Average revenue
of labour
Total revenue per period
=
number of labour
DIVISON OF LABOUR
Division of labour can increase labour
productivity in man
y firms over time. Division of labour
entails each worker specializing in
carrying out one particular task or
operation in a production process.
Advantages of Division of Labour
1. More goods and services can be
created.
2. Full use of made of employee’s
ability.
3. Time is saved
4. It allows the use of machinery.
Disadvantages of Division of Labour
1. Work may become boring (this might bring
down productivity)
2. Workers may feel alienated.
3. Products become too standardized.
Other Ways To Improve Labour Productivity
- Training workers to improve their existing skills or lean
new skills.
- Rewarding increase in productivity with higher pay or
bonus.
- Share purchase of a company to encourage workers to be
shareholders.
- Improving work environment and recreation.
- Replacing old plants and machinery for workers to be
more efficient at work.
- Implementing new ways and processes to reduce waste
and to be more efficient.
Combination Factors of Production
Labour Intensive – Production process
which uses more labour
Capital Intensive – Production process
which uses more capital
Factors Determining The Demand for
Labour and Capital
1 . Factors of production is driven by the demand for
goods and services. Therefore demand for FOPs is
derived from demand for goods and services.
2 . The market prices of labour and capital.
3. The productivity of labour and capital – profit
maximizing firms will get invest in more labour and
capital if only marginal is greater than marginal cost.
ie. Assuming the marginal revenue from producing the next unit of a
good is $2, then the additional cost of investment on labour or capital
cannot be more than $2.
Factor Substitution