Economics · Lesson 7

Production: factors, division of labour & returns

JAMBWAECNECO

What the syllabus asks

JAMB: Theory of production: meaning and types; factors of production and their rewards; division of labour and specialisation; scale of production; concepts of TP, AP and MP and their relationships; law of variable proportions; returns to scale; efficiency of labour

WAEC: Theory of production: meaning and types of production; factors of production (land, labour, capital, entrepreneur) and their characteristics and rewards; efficiency and mobility of labour; division of labour and specialisation; scale of production, internal and external economies and diseconomies of scale; production concepts: total, average and marginal product; law of variable proportions…

NECO: Theory of production: meaning and types of production; factors of production (land, labour, capital, entrepreneur) and their characteristics and rewards; efficiency and mobility of labour; division of labour and specialisation; scale of production, internal and external economies and diseconomies of scale; production concepts: total, average and marginal product; law of variable proportions…

What you will learn

Define production and explain its types and stages (primary, secondary, tertiary).
Describe the four factors of production, their features and rewards.
Explain efficiency and mobility of labour.
Explain division of labour and specialisation with advantages and disadvantages.
Calculate TP, AP and MP from a table and state the law of variable proportions with its three stages.
Distinguish internal and external economies of scale and explain returns to scale.

Key points

Production: creation of goods and services; complete when the good reaches the final consumer.
Primary (extractive), secondary (manufacturing, construction), tertiary (services).
Land → rent; labour → wages; capital → interest; entrepreneur → profit.
Efficiency of labour depends on education, health, tools, conditions, pay, management.
Mobility: geographical (place) and occupational (job).
Division of labour raises output but causes monotony and interdependence; limited by size of market.
MP = TPₙ − TPₙ₋₁; AP = TP ÷ L; MP cuts AP at AP’s maximum; TP is maximum when MP = 0.
Law of variable proportions: with a fixed factor, MP eventually diminishes; stage II is rational.
Internal economies (technical, managerial, purchasing, financial, risk-bearing) vs external (concentration, information, disintegration).
Returns to scale: all inputs varied; increasing, constant or decreasing.

Start here: Meaning and types of production

Think of a bottle of groundnut oil on a shelf in a Jos supermarket. A farmer grew the groundnuts, a mill crushed them, a lorry carried the oil, a wholesaler stored it, and a shop sold it. Every one of these people was producing.

Production is the creation of goods and services to satisfy human wants. It is not complete until the good reaches the final consumer, so transport, storage, banking and retail are all part of production.

Economists say production creates utility (satisfaction). Utility can be created in several ways:

Form utility: changing the shape of materials (cotton into cloth).
Place utility: moving goods to where they are needed (yam from Benue to Lagos).
Time utility: storing goods until they are needed (grain stored for the lean season).
Possession utility: transferring ownership to the person who wants the good (the retailer selling to you).

Types of production

Direct production: producing for one’s own consumption, as a subsistence farmer who eats what she grows. Common in a simple economy.
Indirect production: producing for sale and using the money to buy other goods. Most production in modern Nigeria is indirect.

Stages (classes) of production

Stage	Meaning	Nigerian examples
Primary (extractive)	Taking resources from nature	Farming, fishing, crude oil drilling, tin mining in Jos, lumbering
Secondary	Turning raw materials into finished goods (manufacturing) and construction	Cement factories, textile mills, building a bridge
Tertiary	Services: commercial (trade and aids to trade) and direct (personal) services	Banking, transport, insurance, teaching, nursing, hairdressing

Worked example 7.1

Classify each activity: (a) a fisherman on the Niger; (b) a bakery in Aba; (c) a doctor in a hospital; (d) a lorry carrying cement.

(a) Taking fish from nature: primary.
(b) Turning flour into bread: secondary.
(c) Personal (direct) service: tertiary.
(d) Transport, an aid to trade: tertiary.

Primary; secondary; tertiary; tertiary

⚠️ Common mistake: thinking that only farmers and factories "produce". Teachers, drivers and bankers also produce, because they provide services that satisfy wants.

Try it yourself. Which kind of utility does a cold-storage warehouse for fish create?

Show solution

Time utility: it keeps fish until it is wanted.

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Practice questions

1. Production is complete only when goods

reach the final consumer
leave the factory
are manufactured
are advertised

Show answer

A: reach the final consumer
Distribution is part of production.

2. The reward for land is

interest
wages
profit
rent

Show answer

D: rent
Factor rewards: land–rent, labour–wages, capital–interest, entrepreneur–profit.

3. The factor of production that bears risk and organises the others is the

landlord
capitalist
entrepreneur
labourer

Show answer

C: entrepreneur
The entrepreneur earns profit for risk-bearing.

4. Division of labour is limited mainly by the

price of land
size of the market
number of factories
level of taxes

Show answer

B: size of the market
Specialisation pays only if output can be sold.

5. Which is a disadvantage of division of labour?

Monotony and boredom
Increased output
Saving of time
Use of machines

Show answer

A: Monotony and boredom
Repetition makes work dull.

Key words

Production: Creation of goods and services, including moving them to where they are wanted, to satisfy human wants.
Direct production: Producing for one’s own use (subsistence).
Indirect production: Producing for exchange in the market.
Land: All free gifts of nature used in production; reward is rent.
Labour: Human effort, physical or mental, used in production; reward is wages.
Capital: Man-made goods used to produce other goods; reward is interest.
Entrepreneur: The person who organises the other factors and bears risk; reward is profit.
Mobility of labour: Ease with which labour moves between places (geographical) or jobs (occupational).
Efficiency of labour: The ability of labour to produce more or better output in a given time.
Division of labour: Breaking production into separate tasks, each done by different workers.
Specialisation: Concentrating on producing the goods or tasks one does best.
Total product (TP): Total output produced with given inputs.

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