Rajasthan Board RBSE Class 12 Economics Chapter 7 Concept of Production
RBSE Class 12 Economics Chapter 7 Practice Questions
RBSE Class 12 Economics Chapter 7 Multiple Choice Questions
A rational producer chooses which stage for his production?
Labour is a ………………. factor of production.
(d) None of these
Factors of production are :
(a) land and labour
(b) capital and technology
(d) All of these
In short-term, variable factor of production is :
(c) capital and technology
The point where total production is maximum, the marginal production will be :
RBSE Class 12 Economics Chapter 7 Very Short Answer Type Questions
What is production?
Production is defined as creation of or addition in utility of a product.
What are the factors of production?
Factors of production imply the factors and services used in the process of production. These factors can be classified as :
What is total production?
The production obtained by using all the means of production in a given period of time, is called total production.
What is average production ?
Average production of a factory is the total output produced per unit of a factor divided by the units of a variable factors. Thus,
What is marginal production ?
Marginal production is additional output attributed to an additional unit of the variable factor, other factors remaining constant.
RBSE Class 12 Economics Chapter 7 Short Answer Type Questions
Write the importance of organisation among various factors of production.
Organisation is an important means of production. It is also called management. Production is organised with the help of management and technology, and taking help of specialists, the organisation of production is done on a large scale. Skilled persons in field of production, and efficient management professionals are employed along with technical experts in the process of production. Organisation is called the heart of production due to its importance, especially in properietary and partnership corporations, organisation is used efficiently to build the most favourable structure. By using organisation in a better way, both the output and quality of production can be increased and improved to the maximum.
Write a short note on factors of production-land and labour.
(i) Land : The meaning of land is not the soil alone or the surface of the Earth, but it refers to all the free gifts of nature, in which in addition to land, in common language, natural resources, water, air, light, heating, mines and soil fertility is included. Land cannot be shifted from one place to other like labour and capital. Land is limited and of varying fertility.
(ii) Labour : Labour is a physical or mental effort of human being in the process of production for economic purpose. Any work done for the sake of pleasure or love does not represent labour in economics. It is directly connected with human efforts. The workers’ efficiency differs from one worker to other.
Explain the relationship between average product and marginal product.
Relationship between AP and MP:
- Both AP and MP can be calculated by Total Production..
- When AP rises, then MP also rises but MP > AP.
- When AP is maximum then MP = AP, or say, MP curve cuts the AP curve at its maximum point.
- When AP falls, then MP also falls but MP < AP.
- There may be a situation when MP decreases and AP increases but opposite never happens.
- MP can be zero or negative, but AP can never be zero or negative.
Define law of variable proportions.
According to law of variable proportions, as more and more units of a variable factor are combined with same quantity of fixed factors, total production first increases at an increasing rate, then at diminishing rate, and finally starts diminishing. It implies that marginal product first rises and then diminishes eventually. Law of variable proportions is also known as Law of Returns to a Factor. It is a short-terin concept.
Explain in brief the rational stage of production. ,
Rational stage of production is that when in given cost conditions, the producer maximizes his production. Alternately, the cost of production may be minimum for a given output. This rational stage of production is called Producer’s equilibrium.
RBSE Class 12 Economics Chapter 7 Essay Type Questions
Explain in detail the factors of production.
The production of goods and services requires the use of various production factors. The quantity of production depends on the supply of various factors of national income generation and their productivity. Since economic growth occurs in the total production expansion, therefore the production and efficiency of factors is important for the process of economic development.
(i) Land : The term ‘land’ has been given a special meaning in economics. It does not mean soil, as in the ordinary speech, but it is used in a much wider sense. Land stands for all natural resources which are useful and scarce, actually or potentially. Land is an inactive means of production. Land includes all things obtained free of cost from nature, i.e. land, oceans, mountains, etc. Land is limited and it is a necessary and fundamental means of production. Its fertility varies.
(ii) Labour : Any work whether manual or mental which is done in exchange for some reward is called Labour. So, in terms of economics, professors, teachers, doctors and singers are as much labourers as the ordinary workers. Therefore, the essential condition for a work to be called Labour is that it should be done for a payment or monetary consideration.
It is a perishable factor and it cannot be possible to store the labour for future utilization. If the person or worker does not get employment for some days, then the time so lost cannot be recovered.
(iii) Capital : Capital implies that property which is used to earn money. E.g. raw material, building, machines, equipment, etc.
(iv) Management and Technology : Management and technology or organisation is also an important means of production. With its help, various means of production are arranged in appropriate quantity and coordination is established between them. Now-a-days production is done on very large scale, due to which the importance of this factor has increased greatly.
(v) Entrepreneurship : The entrepreneur owns entrepreneurship. He is that man of production who takes decisions and bears risk. He has also been called the Organizer, the Manager or Risk-taker. The first and foremost function of an entrepreneur is to start a business by collecting various factors of production. Entrepreneur pays remuneration for the various factors of production, remuneration for their services. Whatever surplus is left, is his factor payment. If there is no surplus left, he gets no factor payment.
Explain in detail the different stages of total production, average production and marginal production.
The three stages of production are given below:
The behaviour of production as related to labour emits, is explained with the help of given diagram:
(i) It is called the Stage of Increasing Returns.
(ii) This stage begins from point of origin O and lasts upto point M.
(iii) In this stage
(a) TP increases initially at an increasing rate upto point A. Between A and D, it increases at a diminishing rate.
(b) MP also increases initially reaching its maximum at point C. Thereafter, it begins to decline and becomes equal to average product at point E.
(c) AP increases and reaches its maximum at point E.
(iv) The first stage comes to an end when the MP cuts the AP at the maximum, that is, when the AP is maximum and it is equal to MP. Thus, OM is the boundary line.
(i) This stage is known as the Stage of Diminishing Returns,
(ii) This stage starts from point M on OX-axis and continues upto point F.
(iii) In this stage –
(a) TP continues to increase at a diminishing rate and reaches a maximum at point B.
(b) MP continues to decline and becomes zero at the end of the stage at point F.
(c) AP starts diminishing.
(d) Throughout this stage, AP > MP.
(iv) This stage comes to an end, when TP is the highest and MP = 0. The line FB indicates the boundary line of this stage.
(v) The producer will operate in this stage.
(i) This is the stage of Negative Returns.
(ii) This stage begins beyond point F on OX-axis.
(iii) During this stage –
(a) TP starts diminishing.
(b) AP continues to diminish.
(c) MP becomes negative.
Explain in detail the law of variable proportions.
Meaning : According to the law of variable proportions, when more and more units of a variable factor are mixed with the same amount of fixed factors, the total production increases at a rising rate, and then the rate decreases eventually. This means that marginal production increases first and then eventually decreases. The law of variable proportions is also known as the law of Factor of return. This is a short-term concept. In essence, when the production due a factor is sought to grow through a specific quantity of fixed factors in addition to the variable factors, then the law of variable proportions comes in operation. The ratio between the fixed factors and the variable factor varies, when variation is only in one factor, while retaining other factors as constant.
(i) According to P.A. Samuelson, “An increase in some inputs relative to other fixed inputs will, in a given state of technology, cause output to increase; but after a point, the extra output resulting from the same additions of extra inputs will become less and less.”
(ii) According to G. Stigler, “As equal increments of one input are added; the inputs of other productive services being held constant, beyond a certain point the resulting increments of product will decrease, i.e., the marginal production will diminish.”
(iii) According to F. Benham, “As the proportion of one factor in a combination of factors is increased, after a point, first the marginal and then the average production of that factor will diminish,”
(iv) According to Mrs. Joan Robinson, “The law of diminishing returns, as is usually formulated, states that with a fixed amount of any one factor of production, success in increase in the amount of other factor will, after a point, result into a diminishing increment rate of output.”
It is obvious from the above definitions of the law of variable proportions (or the law of diminishing returns) that it refers to the behaviour of output as the quantity of one factor is increased, keeping the quantity of other factors fixed and further it states that if more units of a variable input are applied to a given quantity of fixed inputs, the total output may initially increase at an increasing rate, but beyond a certain level of output, the rate of increase in the total output diminishes. Precisely, the marginal increase in the total output eventually decreases when additional emits of variable factors are applied to a given quantity of fixed factors.
The law of variable proportion is based on the fact that not all factors of production can be replaced for each other. And it is a noted economic fact that the elasticity of replacement among the various factors is not infinite.
Why does a rational producer select the second stage of produc tion? Explain.
Rational stage of producer is that when in given cost conditions, he maximizes his production. Alternately, the cost of production may be minimum at the given output. This rationality stage of producer is called Producer’s Equilibrium.
In the figure, it is denoted by point (E) on TP curve or by N at the last point of second stage.
Similarly, more than ON labour will cause negative marginal productivity and less than NE total product. Therefore, a rational consumer will employ ON labour, and will get NE, optimum or maximum output. Therefore, the rational stage of productivity is the second stage only. In the first stage, all the three-total product, marginal product and average increase. This induces the producer to produce more and he enters into the second stage. Similarly, in the third stage, total product and average product decline and marginal product becomes negative. Therefore, producer will not continue productivity in the third stage. He will increase his labour power upto ON and will get maximum total output at point E of TP or NE of total output.
Manufacturers, societies and governments have their own importance in the concept of production functions and products. After comparing the cost, the manufacturer will decide on the production of products and services. Generally, a manufacturer selects the product in which the cost of production is low, the quantity of production is high and the quality of production is the best. .
RBSE Class 12 Economics Chapter 7 Other Important Questions – Answers
RBSE Class 12 Economics Chapter 7 Multiple-Choice Questions
Identify the correct statement :
(a) The average product is at its maximum when marginal product is equal to average product.
(b) The law of increasing returns to scale relates to the effect of changes in factor proportions.
(c) Economies of scale arise only because of invisibilities of factor proportions.
(d) Internal economies of scale can accrue only to the exporting sector.
The marginal product of a variable input is best described as :
(a) total product divided by the number of units of variable input.
(b) the additional output resulting from a one unit increase in the variable input.
(c) the additional output resulting from a one unit increase in both the variable and fixed inputs.
(d) the ratio of the amount of the variable input that is being used to the amount of the fixed input that is being used.
Diminishing marginal returns implies :
(a) decreasing average variable costs
(b) decreasing marginal costs
(c) increasing marginal costs
(d) decreasing average fixed costs
The short-run, as economists use the phrase, is characterized by :
(a) at least one fixed factor of production and firms neither leaving nor entering the industry
(b) a period where the law of diminishing returns does not hold
(c) no variables inputs that are all of the factors of production are fixed
(d) all inputs being variable
The marginal, average and total product curves encountered by the firm producing in the short-run exhibit all of the following relationships except:
(a) when total product is rising, average and marginal product may be either rising or falling
(b) when marginal product is negative, total product and average product are falling
(c) when average product is at a maximum, marginal product equals average product, and total product is rising
(d) when marginal product is at a maximum, average product equals marginal product, and total product is rising
The “law of diminishing returns” applies to :
(a) the short-run, but not the long-run
(b) the long-run, but not the short-run
(c) both the short-run and the long-run
(d) neither the short-run nor the long-run
Diminishing return occurs :
(a) when units of a variable input are added to a fixed input and total product falls
(b) when units of a variable input are added to a fixed input and marginal product falls
(c) when the size of the plant is increased in the end
(d) when the quantity of the fixed input is increased and returns to the variable input falls
Total cost in the short-run is classified into fixed costs and variable costs. Which one of the following is a variable cost?
(a) Cost of raw material
(b) Cost of equipment
(c) Interest payment on past borrowings
(d) Payment of rent on building
Diminishing marginal returns begin to occur between units :
(a) 2 and 3
(b) 3 and 4
(c) 4 and 5
(d) 5 and 6
Marginal cost is defined as :
(a) the change in total cost due to a one-unit change in output
(b) total cost divided by output
(c) the change in output due to a one-unit change in an input
(d) total product divided by the quantity of input
Which of the following is true of the relationship between the marginal cost function and the average cost functions?
(a) If MC is greater than ATC, then ATC is falling
(b) The ATC curve intersects the MC curve at minimum MC
(c) The MC curve intersects the ATC curve at minimum ATC
(d) If MG is less than ATC, then ATC is increasing
Which of the following statements is true of the relationship among the average cost functions?
(a) ATC = AFC – AVC
(b) AVC = AFC + ATC
(c) AFC = ATC + AVC
(d) AFC = ATC – AVC
Which of the following is not a determinant of the firm’s cost function?
(a) The production function
(b) The price of labour
(d) The price of the firm’s output
Which of the following is a function of an entrepreneur?
(a) Initiating a business enterprise
(b) Risk bearing
(d) All of the above
In describing a given production technology, the short-run is best described as lasting :
(a) upto six months from now
(b) upto five years from now
(c) as long as all inputs are fixed
(d) as long as at least one input is fixed
If decreasing returns to scale are present then if all inputs are increased by 10% then :
(a) output will also decrease by 10%
(b) output will increase by 10%
(c) output will increase by less than 10%
(d) output will increase by more than 10%
If the marginal product of labour is below the average product of labour, it must be true that :
(a) the marginal product of labour is negative
(b) the marginal product of labour is zero
(c) the average product of labour is falling
(d) the average product of labour is negative
What is a production process?
(a) Technical relationship between physical inputs and physical output
(b) Relationship between fixed factors of production and variable factors of production
(c) Relationship between fixed factors of production and the utility created by it
(d) Relationship between a quantity of output produced and time taken to produce the output
RBSE Class 12 Economics Chapter 7 Very Short Answer Type Questions
What is scale of production?
Scale means a particular unit like metre, litre, kilogram, yard, feet or area of land in bigha, acre, hectare, etc.
What is meant by TP?
TP means total product or sum total of output produced by all the units of a variable factor used in the process of production along with some amount of the fixed factors.
What is AP?
AP stands for average product. It is output per unit of the variable factor used in the process of production.
What do you understand by MP?
MP means marginal product. It is additional output attributed to an additional unit of the variable factor, other factors remaining constant.
When is TP maximum in relation to MP?
When MP is zero, there is not addition to TP. Hence, TP is maximum at this point.
What does increasing returns to a factor means?
First stage is called the Stage of Increasing Returns. The law of increasing returns operates because of indivisibility of fixed factors. It means, in order to produce goods upto a given limit, at least one unit of the fixed factor is a fixed.
What do you mean by law of diminishing returns to a factor?
Law of diminishing returns states that as more and more of the variable factor is combined with the fixed factor, a stage must ultimately come when marginal product (and eventually average product) of the variable factor starts declining.
What is returns to factor?
It refers to the behaviour of output when only one variable factor of production is increased in short-run and fixed factors remain constant.
What is the definition of the law of variable proportions or diminishing returns as given by Samuelson?
According to P.A. Samuelson, “An increase in some inputs relative to other fixed inputs will, in a given state of technology, cause output to increase; but after a point, the extra output resulting from the same additions of extra inputs will become less and less.”
What is the meaning of input?
An input is a good or service that goes into the process of production. In the words of Baumol, “An input is simply anything which the firm buys for use in its production or other processes.”
What is the meaning of output?
An output is any good or service that comes out of production process. An output may be tangible or intangible.
What do you understand by fixed input?
Fixed input is one whose supply is inelastic in the short-run and is used in fixed quantity in the short-run.
What do you understand by variable input?
A variable input is defined as one whose supply in the short-run in elastic, e.g. labour and raw material, etc.
What are the steps of calculating total output product (TP)?
Total output product can be calculated from the following steps:
- By summation of output of different units of factors.
- By multiplying average product with units of factors of production.
- TP = ∑MP.
- Or TP = APx units of factors of production.
RBSE Class 12 Economics Chapter 7 Short Answer Type Questions
Describe the relationship between the marginal production and total production of an input.
The relationship between marginal and total production is an below :
- When MP increases, TP also increases.
- When MP is zero, TP is maximum.
- When MP is negative, TP begins to decline.
What is the law of increasing production ?
When at a certain time, keeping some means of production constant, a certain means is increased, and if the production increases with a higher rate than increase in variable means, it is called law of increasing production.
What do you understand by law of diminishing production ?
When in agricultural activity, the land is kept constant and the quantity of other inputs is increased, then the increased in production is less in proportion to the increase in quantity of inputs. This is the law of diminishing production.
What is the importance of land in production function?
The land is is a free gift of nature and is in limited quantity. It is not possible to do any production without the help of land. Without land, it is not possible to do agriculture work, construction work, or service work. Due to this, land occupies an important position in production work.
What do you mean by labour? Explain.
Labour implies any physical or mental work which is done in exchange for currency. An act of attachment, love or mercy is not called Labour because this work is done without currency. Labour is an active means of origin and is an important source used in production work.
What do you mean by capital? State the importance of capital in production function.
The excess of the land and the part of the property of society which is used for fund raising, is called capital. Capital is considered to be the most important means of production in the modern era. Raw materials, machines, buildings, equipment etc. are the forms of capital.
Why does the third stage of negative return come?
This situation arises when excessive quantities of variable factors adversely affect the efficiency of a fixed factor. The proverb “too many cooks spoil the broth” aptly applies to this situation. In this stage, the quantity of variable factors becomes too excessive relative to the fixed factors so that they get in each other’s way with a result that the total output falls instead of rising. In such a situation, a reduction in the units of the variable factors will increase the total output. It is called the Stage of Negative Returns.
Write down the characteristics of land.
Following are the characteristics of land:
- Land is Free Gift of Nature: Land is free gift of nature because man has not made or created the land.
- Land is Immoveable : It cannot be shifted from one place to other like labour and capital.
- Land is an Inactive Factor of Production : If it is not deployed effectively through human talent and effort, it will not produce any results.
- Land Differs in Fertility : Two pieces of land do not have the same fertility. Mineral resources, river system, forest resources, mountain formation, fertility of soil, etc. differ from region to region.
- Specific Factor of Production : Land is a specific factor of production because without land we cannot produce anything.
- Imperishable : According to Ricardo, “Land is an indestructible factor of production because it cannot be destroyed.
- Inelastic Supply of Land : In the sense of space and natural resources, land is available in the same amount whatever be the price offered. It is a free gift of nature.
Write down the characteristics of labour.
The following are the main characteristics of labour as a factor of production :
- Labour is directly connected with human efforts.
- Labour is inseparable from labourer himself. It implies that the labourer embodies the services he performs. Labourer is the source of his own labour power.
- Labour is perishable. It implies that the labourer cannot store his labour and so he has no reserve price for his labour. The labourer has, therefore to accept the wage offered to him.
- The efficiency of labour differs from labourer to labourer. On the basis of efficiency, labour may be classified as unskilled labour, semi-skilled labour and skilled labour.
- Labour has a weak bargaining power. It is because the labourer is economically weak, while the employer is economically powerful, although things have changed a lot in favour of labour during the 20th century.
- All labours are not productive. All efforts are not sure to produce resources.
- Labour is a moveable factor because labour can move from one job to another job or from one place to another place.
How many types of capital are there?
There are following types of capital:
- Fixed Capital : It exists in durable shape, i.e. machines.
- Circulating Capital : It is used for production in a single-time use, i.e. raw material.
- Real Capital : Investment in physical goods , i.e. plant and machinery, building.
- Human Capital : It represents capital existing in the form of human skill and ability.
- Tangible capital : It can be touched or seen, i.e. plant and machinery.
- Intangible capital : Existing in the form of rights and benefits, he. goodwill, patent.
- Individual capital: It refers to the personal property of an individual or a group.
- Social capital : It belongs to the society in the form of roads, bridges.
What are the three stages of capital formation?
There are mainly three stages of capital formation, which are given below:
(i) Savings : The basic factor on which capital is created is savings. The ability to save depends on the income of a person. Higher savings generally follow higher earnings. A rich country has more potential than a poor country and can get rich from it soon. It is not only the ability to save, but also the desire to save, which is of great importance. Desire depends on the person’s concern about his future as well as the social order in which he lives.
(ii) Mobilization of Savings : It is not enough that people want to save money, what is essential is that the saved money enters circulation and facilitates the process of capital formation. To collect public savings, banking and other financial institutions should have a broad network and their services should be accessible to the potential investor.
(iii) Investment: The process of capital formation is completed, when the actual savings are converted into real capital assets. There should be an entrepreneurial class of an economy that is ready to bear the risk of business and to utilise savings in productive opportunities so that it can create new capital assets.
What are the functions of an entrepreneur?
The following are the functions of an entrepreneur :
(i) To Initiate a Business Venture and Coordination : The first and most important task of the entrepreneur is to start the business by collecting various factors of production. Entrepreneurs pay costs for various factors of production, remuneration for their services, and that which is surplus, is the factor payment that they receive. If there is no extra balance, then they do not get any factor payment.
(ii) Risk Bearing and Uncertainty : Many economists have emphasized that the most significant task of an entrepreneur is to bear the risk and uncertainty. According to F.H. Knight, certain risks (Insurable risks) like risks of fire, thefts and accidents, etc. do not cause uncertainty and thus do not give rise to profits. It is non-insurable risks (like risks relating to price decision, output decision, and product variation decision, etc.) that involve uncertainty and give rise to profits.
(iii) Innovation : It is the true function of the entrepreneur. In broad sense, innovation includes introduction of new production methods, utilization of new sources of raw materials, adoption of new forms of organization, introduction of new products and discovering new markets.
Can the total product and average product be zero?
Total product and average product cannot be zero in any state of production. Only when the production is stopped in the industry then such a situation may come up. Though total production and average production diminish in the second and third stages of production, they never become zero.
What do you understand by the third stage of negative returns?
As the amount of a variable factor continues to increase with a constant quantity of the other fixed factors, a stage is reached when the total product declines and the marginal . product becomes negative. This phenomenon of negative returns in stage 3 is due to the fact that the quantity of the variable factors becomes too excessive relative to the fixed factors so that they obstruct each other with the result that the total output falls instead of rising.
Besides, too large a number of the variable factors also impairs the efficiency of the fixed factors. The proverb “too many cooks spoil the broth” aptly applies to this situation. In such a situation, a reduction in the units of the variable factors will increase the total output. Just as in the first stage, marginal product of the fixed factors is positive due to its limitedness, in the third stage, the marginal product of the variable factors is negative due to its excessiveness.
RBSE Class 12 Economics Chapter 7 Essay Type Questions
What is division of labour? What are the advantages of division of labour?
Division of labour is an important feature of modem industrial organisation. Division of labour occupies so important a place in modern production process and adds so greatly to the total output and wealth of a country that Adam Smith, the father of economics, selected it as the first topic for discussion in his book, “An Enquiry into the Nature and Causes of Wealth of Nations.”
Division of labour may be simple or complex. Simple division of labour refers to the production of a single commodity by a person. In a society, where simple division of labour refers to the set up, there every worker would be producing only one commodity. Some will be producing cloth, some will be making shoes, some others will be producing farm products, but everybody will be producing either farm products or clothes or shoes. In the old village societies, there prevailed this simple division of labour, and therefore, the old village society composed of farmers who produced agricultural goods, weavers who made cloth, cobblers who made and repaired shoes, etc.
However, in the modem days, division of labour is of complex type. In fact, it is the complex division of labour, which has increased so greatly the productivity of the modem production system.
Many advantages have been claimed for the mechanism of labour division. The system of division of labour has proved to be very beneficial for the society.
Advantages of Division of Labour
(i) Increase in Productivity : The biggest benefit of division of labour is that it increases the productivity of every worker. The productive capacity of the individual and the community has increased significantly with the division of labour.
(ii) The Right Man in the Right Place : Another major benefit is that under the division of labour, the work is allocated according to the capacity and skill of the individual workers. This ensures a high level of efficiency because the right person is put into the right work. Thus, it eliminates the possibility of fitting a square peg in a round hole.
(iii) Dexterity and Skill : The worker becomes highly skilled and acquires high degree of dexterity because of the repeated performance of the same operation. As the age -old dictum goes, practice makes a man perfect. The worker acquires perfection in his skill because he has to carry out the same operation over and over again. This adds to his productivity.
(iv) Inventions are Facilitated: Another important advantage is that it promotes the development of new ideas and the development of better technology. This is due to the fact that when a worker is performing the same operation repeatedly, he can think of doing that process better and better. Even some mechanical devices can do that easily and more efficiently. Thus, the division of labour results in the invention of new machinery and better tools.
(v) Saving in Time : Under the division of labour, a worker is a part of the whole process and therefore he should only learn a part of the process. Thus long-term training that is provided unnecessarily, is avoided. This greatly saves time and money.
(vi) Economy in the Use of Tools : A worker is not given a complete set of tools for the whole process. They are made available only with those instruments which are required by them to perform that part of the process which is allocated to them. Thus, a set of tools can be used by many workers, which is a great economic benefit.
(vii) Use of Machinery Encouraged : By breaking up the production process of a commodity into small and simple operations, production can be easily carried out by suitable machines. Machines can be economically used only when they are fully used, that is, when their productive capacity is fully utilized. Division of labour involves production on a large scale and therefore permits the maximum and economical use of machinery.
(viii) Cheaper Goods : Another unique advantage of labour division is that large scale production costs are cut off. Commodity production is largely based on low cost per unit production, which ensures the production of novelties, and makes goods available at cheaper prices. Even poor people can buy them too. As a result, people’s standard of living has increased.
(ix) Rise of Entrepreneurs : Since the work is divided into various processes, someone is required to coordinate the work. This has resulted in the rise of entrepreneurs whose job is to specialize in the art of organisation. The rise of entrepreneurs has greatly contributed to the increase in efficiency and productivity of the modem economy.
Write your comments on:
(i) Capital formation and technological progress
(ii) Capital formation and employment generation.
(i) Capital Formation and Technological Progress : Capital accumulation makes possible technological progress of the economy. Different technologies require different types of capital goods. Therefore, when new, better and more efficient technology is invented, then it can be used for production, if this technique is suitable for capital goods, then it is according to that technique capital goods are formed. Therefore, no technical progress can be made without capital accumulation. If there is no capital accumulation, then various new inventions and discoveries will lie unused for production. Therefore, it is clear that capital accumulation promotes technological progress in the country and through this it accelerates the economic development of a country.
(ii) Capital Formation and Employment Generation : Another important role of capital formation is the creation of employment opportunities in the country. Capital formation creates employment in two phases. First of all, when capital is produced, then some workers are employed to create capital like machinery, factories, dams, irrigation works, etc. Secondly, more men will be employed, when capital is used to produce other goods. In other words, many workers have to be engaged in the production of goods with the help of machines, factories, etc. Therefore, one sees that the employment will increase because the economy of capital formation has increased.
Now, if population increases sharply as compared to the increase in capital stock, then, labour force cannot be employed in production work because they will not have enough equipment for employment. It is to reduce unemployment that the rate of capital formation should be kept high enough to increase employment opportunities by linking the work force of the country to production.
What are the chief factors which determine the efficiency of labour?
The chief factors which determine the efficiency of labour are the following:
(i) Physical Fitness : The health and physical strength of the workers act significantly to determine their efficiency. An unhealthy worker is dull and tired, his morale is low and absenteeism is frequent. Not surprisingly, the production suffers in quantity and quality. Physical health and strength depend on racial factors, climate and nutritious diet that is consumed in sufficient quantity.
(ii) Level of Education and Skill : For the modem factory system of production, there is a requirement of disciplined, intelligent and mentally alert workers who can work on complex and delicate machines. An educated and skilled worker will clearly produce more than an illiterate and inefficient person. Education develops responsibility in the discipline of the labour force, and towards the job, and the material and equipment with which it works.
(iii) Natural Resources : Favourable and moderate climate, rich mineral deposits and abundant water supply, availability of electricity and transportation, also affects the efficiency of labour. Cool and temperate climate is conductive for hard work. If the resources are of good quality and are readily available in adequate quantities, then the production per hour per worker will be more than at a place where the resources are of poor quality or not available in sufficient quantity.
(iv) Division of Labour : In these days of expertise, the efficiency of labour also depends on the degree of their expertise. Workers who focus with energy, mind, training and resources on different processes are relatively more efficient, because it is practice that makes humans perfect. This improves both speed and quality of expertise and enhances overall productivity.
(v) Amount of Capital per Worker : The efficiency of labour depends largely on the quantity of capital per worker. The greater the quantity of capital such as tools, machines, with which a worker works, the greater will be his productivity. In developing countries like India, availability of capital per worker is very low, therefore, no wonder, that his productivity is also low.
(vi) Quality of Capital and Technological Progress : The efficiency of labour is also a direct function of the quality of capital goods. The productivity of labour depends not only on the quantity of capital, but also on its quanlity. A worker working with better tools will be more productive than a worker who has inferior tools.
(vii) Organisational Methods : Organisational methods also affect labour efficiency. An efficient employer can do much to raise the efficiency of his labour force by an intelligent plant layout, proper distribution of work among his employees, efficient purchase of raw materials and the installation of advanced machines. Assembly line production has increased the labour efficiency exponentially by bringing the work rather than taking the workers to work. Similarly, employers should know that good lighting, proper ventilation and hygiene of factories can go a long way in improving labour productivity. Proper environment enhances the efficiency of workers.
(viii) Hours of Work : The number of working hours of a worker is also capable of affecting efficiency. After a stage, the extended-hours worker has more stress and fatigue and his productivity goes down because he works for more than several hours. Appropriate hours of work, with a reasonable interval between the work, provides the worker with the necessary facilities and increases his efficiency.
(ix) Fair Wages : Health and efficiency go together. The health and strength of a worker depends on the amount and quality of the food consumed by him. Underpaid workers are underfed, poorly clothed, and weak in health. How can we expect them to work as efficiently as a well-paid, satisfied worker? In all advanced countries, the economy of high wages is duly recognized. Moreover, prompt payment of wages when due is also conducive to labour productivity.
(x) Healthy Trade Unions : Healthy and strong trade unions are an asset, as management of well-organized labour is easier. The experience of advanced countries has proved that due to the impact of strong trade unions, the absentiesm and indiscipline of labour has become very low. Labour leaders, when taken in confidence, have a moderating impact on extremist tendencies.
(xi) Social and Political Factors: Social security enhances labour efficiency. If workers are insured in a suitable manner for unemployment, ill health, etc., they get a new mobility and feel inspired to do their best. Similarly, a skilled national government makes sincere efforts to create a national economy that can get a ready and enthusiastic response from labour.
Show the different aspects of returns to scale with diagrams.
Following are three aspects of returns to scale:
(i) Increasing Returns to Scale : If the output received from a production process increases at a faster rate than the rate of increase in inputs (proportion of inputs remaining the same), then the returns to scale are said to be increasing. Given below figure shows a production function with increasing returns to scale. The line OP is the scale line because a movement along this line shows only change in scale of production. In the given figure, units of labour and capital are doubled from 2 units to 4 units and output more than doubles from 50 units to 130 units. The length OA is greater than the length AB which is greater than the length BC, OA > BC.
(ii) Decreasing Returns to Scale : When the increase in all inputs in the production process is higher as compared to the proportional increase in production, then the decreasing returns to scale accrues. The figure below shows a production function with decreasing returns to scale. It is clear from the figure that by doubling the quantity of factors used in production, the producer is unable to double the production. Returns on the scale decrease due to the increasing scale of diseconomies of production.
(iii) Constant Returns to Scale : Constant returns to scale refers to OA = AB = BC situation in which expansion in output happens exactly in proportion to the expansion in factor inputs. In other words, constant returns to scale means that the size of inputs and the size of the output increase in the same proportion. Doubling the input doubles the output. Here, the input and output are increasing in the same proportion.
RBSE Class 12 Economics Chapter 7 Numerical Questions
Find out AP and MP with the help of given TP and labour per units.
When 6 units of labour (or variable factor) are employed:
TP = AP × L = 25 × 6 = 150
Also, TP = ∑MP = 50 + 40 + 30 + 20 + 10 + 0 = 150
AP = TP/L = 150/6 = 25
MPof 6th unit = TPn – TPn-1 = 150 – 150 = 0
Likewise, when 7 units of labour are employed:
TP = AP × L = 21 × 7 = 147
Also, TP = ∑MP = 50 + 40 + 30 + 20 + 10 + 0 – 3 = 147
AP = TP/L = 147/7 = 21
MPof 7th unit = TPn – TPn-1 = 147 – 150 = – 3
Find out the average production and marginal production with the help of total production and units of variable labour factor in the following table:
Find out the total production (TP) and marginal production (MP), if average production (AP) is given in the following table:
Calculate average production and total production from the given below information:
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