Production- is any activity designed or to fabricate goods & A ; services to fulfill people’s wants. The house uses the resources of land. labor. capital ( input ) to do goods and services ( end product )

The people who make and sell goods and services are known as manufacturer and the people who use these goods and services to fulfill their wants and demands are known as consumer.

Phases of production

1. Primary sector- besides known as extractive industries

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It is the first sector in which we extract natural stuffs from the Earth and utilize it.

E. g. excavation. fishing. oil boring. agriculture. wood cutting… etc.

2. Secondary sector

In this sector we convert the natural stuffs into finished merchandises or to fabricate goods.

E. g. building and fabrication

• Glass is made up of sand

• Paper is made up of wood.

3. Tertiary sector –also known as service sector

This subdivision provides service to the consumers and other sectors of the
economic system. E. g. banking. insurance. touristry. hotels. conveyances. instruction. stores. showrooms… etc

What is the purpose of production?

Maximizing net income by fulfilling consumer demands & A ; wants

Net income is reward to successful concern proprietors or enterpriser. for taking the hazard of puting up a house.

Other aims

• Providing populace services

• Supplying a charity

• Non-profit devising organisation

? Labour intensive method

? Capital intensifier method

Factor substitution-when a house tends to replace labour with more capital. it is known as factor permutation.


The sum of end product that can be produced from a given input of resources is called productiveness. To increase in productiveness means more end product or grosss can be produced from the same input of labor and other resources. The chief purpose of any concern is to unite its resources in the efficient manner.

For illustration –a building company employs 10 carpenters but provide merely one cock and bore. It is obvious that a building company combined the labor and capital non in the efficient manner. To increase the productiveness building company needs to supply more capital ( cock & A ; drills ) .

In general. productiveness in a house will increase if more end product ( goods & A ; services ) are produced with the same input of resources or fewer resources.

The determination on how best to unite factors of production will depend on the figure of things.

The nature of the product- If the merchandise demand is high in national or international markets will be given to increase the usage of automatic machinery.

The size of the firm-As a house grows in size. it tends to use more capital relation to labor.

The comparative monetary values of labor and capital- If rewards are high. a house may make up one’s mind to utilize more capital alternatively of labor.

Labour productiveness can be measured –

Average merchandise of labour = entire merchandise

Number of employers

Average gross per worker per period= TR

Number of employers

The mean merchandise of labor is a utile step of how efficient workers are.

Q: Why do houses desire to raise productiveness?

Increasing productiveness can take down concern cost and increase net income. If the sum of labor. capital and land can able to bring forth more end product for the same entire cost. the cost of each unit of end product will hold fallen.

A house that fails to increase productiveness at the same or the faster gait than its competitor’s quality and monetary values wise so in the long tally that house will confront closer.

For illustration –business in UK or develop states are confronting tough competition from the developing states like China. Malaysia. Taiwan and India due to the lower labor rewards than in the develop states for similar work. So it’s of import for UK houses to better their productiveness. lower their AC and better their merchandise quality in order to vie with abroad houses.

Q: How houses can raise their productiveness of labor?

• Existing workers should larn new accomplishments
• Firms should give wagess like fillip –motivation
• Encourage their worker to purchase their portions to better productiveness
• Bettering occupation satisfaction-working hours –team working-
• Provide new tools and machinery to better productiveness

Why are at that place little houses? Page 216 & A ; 217

1 ) The size of the market may be small- a little figure of clients willing to purchase a merchandise. Then there is no pint in a house to turn in big size.

The market is local

2 ) Capital is limited

3 ) Government aid

4 ) Personal pick

How houses can turn in size?

Business grows in two ways:

“Internal growth” : – Growth paid for by proprietors capital or retained net incomes. it is achieved when a house increases its sale s. its figure of subdivisions and its scope of merchandises but non taking over or amalgamation with other company.

“External growth”/AMALGAMATION: – it occurs when a concern takes over or merges with another concern.

Franchising: where a concern leases its thought to franchisees. This allows new subdivisions to open across the state and internationally.

Distinguish between MERGER and TAKE OVER?

Amalgamation means when the proprietors of two concerns agree to fall in their houses together to do one concern.

Take over or acquisition is when 1 concern buys out another concern and set under the control of the chief concern.

Both MERGER and TAKE OVER are normally known as Integration

Types of Integrations

1. Horizontal integrating: – It is when one house mergers with or takes over another 1 in the same industry at the same phase of production. E. g.
? Two supermarkets join together
? Two Bankss
? Two oil companies
? Two auto fabrication companies

Advantages –it reduces the figure of competition

There are chances of economic systems of graduated table

Bigger market portion


Making monopolies

High monetary values

2. Vertical integrating: – it is when one house amalgamations or takes over another 1 in the same industry but at the different phases of production. Vertical integrating can be frontward or rearward.

Primary Secondary Tertiary

Backward perpendicular Integration frontward perpendicular Integration

Forward vertical. a auto fabrication takes over a auto retailing concern.

1. The amalgamation fives an assured mercantile establishment for their merchandise to sell 2. Net income will utilize in the reinvestment or to in enlargement 3. Information about consumer demands and penchants can be obtained straight by the industries

Backward perpendicular integrating

1. Cost of production will be controlled
2. Handiness of natural stuff

Conglomerate integration-is when two house merges with or takes over a house in a wholly different industry. This is besides known as variegation or sidelong integrating.


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