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

PRODUCTIVITY RANKING

100 5 100/5=20

210 7

600 60

1000 150

The following to hand up:

20,21,22,23,24,25,26

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 many 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