Web & Social Media Analytics Previous Year Question Paper.pdf
Production
1. MODULE - 3
Producing Goods and
Services
Production
ECONOMICS
Notes
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7
PRODUCTION
Inordertosatisfyourwantswehavetoproducevarioustypesofgoodsandservices.
Theproductionofgoodstakesplaceinagriculturalfields,factories,firms,industriesand
productionofservicestakesplaceinshops,offices,hospitals,schools,colleges,hotels,
banksandatmanyotherplaces.Inaneconomy,theremaybelakhsofproductionunits
whichproducegoodsandservices.Productionistheresultofthecombinedeffortsof
thefourfactorsofproduction-land,labour,capitalandentrepreneurship.Thesearealso
calledinputsorresources.Therelationshipbetweeninputsandoutputholdsthekeyto
optimumuseofresources,producingmaximumlevelofoutputpossibleandincreasing
thelevelofoutputetc.
OBJECTIVES
Aftercompletingthislesson,youwillbeableto:
explain the concept of production function;
analyse different techniques or methods used to produce goods and services;
explain the terms, total product, average product and marginal product;
know the law of diminishing marginal product;
explain production process and organization of production activity;
understand the role of factors of production;
explain the role and importance of firms and industry;
identify various types of producers in the economy.
7.1 CONCEPT OF PRODUCTION FUNCTION
Productionisdefinedastransformationofinputsintooutput.Theresourcesusedin
productionarecalledinputsandthegoodsandservicesproducedarecalledoutput.For
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example, for the production of an output called rice, we require inputs such as
agriculturalland,seeds,fertilizers,plough,water,pesticides,dieseltoruntractoretc.All
theseinputshavetobecombinedinsomeprescribedamountstoproducesomequantity
ofrice.Productionfunctiontellsusthetechnicalrelationshipbetweeninputsand
outputofafirm.Ittellsusthemaximumquantityofoutputthatcanbeproduced
with the help of given quantities of inputs.
In short, the quantity of output is the function of inputs like land, labour, capital,
entrepreneurshipandrequiredrawmaterials.Thereisadirectrelationshipbetweenthe
amountofinputsandtheamountofoutputproduced.Anincreaseininputsleadsto
increase in output to certain extent and vice versa. The aim of every producer is to
maximizethequantityofoutputfromthegivenamountofinputs.Theinputsmustbe
combinedinaparticularmannerforproductionofaparticulartypeofoutput.Takethe
example of a tailoring shop. It requires a master who can cut the cloth as per
measurementandonepersonforonestitchingmachinetostitchtheclothcutbythe
mastertomakeshirtorpantetc.Ifworkloadismorethenanothermachineandaperson
to work with it can be added. Technology ormethod of production refers to the
ratioinwhichinputsarecombinedtoproduceoutput.So,theproductionfunction
is also defined as ‘a technological relationship that tells us the maximum output
produciblefromvariouscombinationsofinputs.’
INTEXT QUESTIONS 7.1
1. Defineinputs?
2. Defineoutput?
3. Defineproductionfunction?
7.2 DIFFERENT TECHNOLOGIES OF PRODUCTION
Goods and services can be produced in more than one way. For example, the
productionofclothcanbemadeeitherwiththehelpofhandloomorwiththehelpof
powerloom.Thefirstoneislabourintensivetechnologyofproductionandthesecond
oneiscapitalintensivetechnologyofproduction.
Whenafarmermakesuseofwoodenplough,bullocksetc.intheproductionoffood
grainsheusesthelabourintensivetechnologyofproduction.Ontheotherhandwhen
heusestractor,pumpset,harvesterintheproductionoffoodgrains,heusescapital
intensivetechnologyofproduction.Inthiswaythetechnologyofproductioncanbeof
thefollowingtwotypes.
1. LabourIntensiveTechnology
2. CapitalIntensiveTechnology
3. MODULE - 3
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LabourIntensiveTechnology:Whenwemakemoreuseoflabourandlessuseof
capital per unit of output in the production of our commodity that is called labour
intensivetechnology.Thistypeoftechnologyisusedinhouseholdenterprisesandinthe
enterprises which make production for self consumption or in case of small scale
production.
CapitalIntensiveTechnology:Whenwemakemoreuseofcapitalandlessuseof
labourperunitoutputintheproductionofourcommoditythatiscalledcapitalintensive
technologyofproduction.Thistypeoftechnologyisusedwhentheproductionismade
on a large scale for sale in the market in order to earn profit. In corporations and
governmententerprisesgenerallythereistheuseofcapitalintensivetechnologyof
productionbecausethereislargescaleproductionofgoodsandservices.
Anotheraspectoforganisingtheproductionactivityisdivisionoflabour.Divisionof
labourincreasestheefficiencyofworkersduetowhichlargescaleproductionbecomes
possible.Divisionoflabourmeanssplittingupoftheproductionactivityintomany
processesandassigningeveryprocessamongdifferentworkersaccordingtotheir
aptitudeandability.Divisionoflabourisofthefollowingtwotypes.
1. Productbaseddivisionoflabour:Ifaworkerspecializesintheproductionofa
singlegoodorservice,itiscalledproductbaseddivisionoflabour.Incaseofsmall
farmers,apotter,acobbleroracarpenterinavillageweseethatthereistheuse
ofproductbaseddivisionoflabour.Itisverycommoninhouseholdenterprisesof
developingcountrieslikeIndia.Whentheproductionismadeforselfconsumption
oronasmallscalethereistheuseofproductbaseddivisionoflabour.Forexample
mostofthefarmersinourcountrymakeproductionoffoodgrainsmainlyforself
consumption.Allofthemmakeuseofproductbaseddivisionoflabour.
2. ProcessBasedDivisionoflabour:Inbigproductionunitslikecorporationsand
governmententerpriseswheretheproductionismadeonaverylargescale,there
istheuseofprocessbaseddivisionoflabour.Incaseofprocessbaseddivisionof
labour,theproductionofacommodityisdividedintomanyprocessesandaworker
specializesinoneortwoprocesses,thatiscalledprocessbaseddivisionoflabour.
ForexampleBritanniaBreadCompanymanufacturesbread.Rawmaterialfor
breadiswheatflour.Conversionofwheatflourintobreadrequiresthreeorfour
processes.Theflourhastobeconvertedintodoughanddoughhastobekeptinto
containersforbaking.Containersarekeptinovensforbaking.Thebakedbread
iscutintoappropriatesizeandpacked.Allprocessesrequiredinmanufacturingof
bread are undertaken by different workers and nobody can claim that he has
manufacturedthebread.Hecansaythathehasperformedoneortwoprocesses
inthepreparationofthebread.
Ingovernmentsectoralso,thesupplyofanysinglegoodorservicedependsonthe
processbaseddivisionoflabour.Forexample,takethecaseofasimplestreetlighting
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tobeprovidedinanewlyconstructedgrouphousingcomplex.Itundergoesseveral
processes.Firstistheinstallationofelectricpolesinthestreets.Thesecondprocessis
connectingallthepoleswithelectricwires.Thethirdisfittingelectricbulbsandtubes
andthefinalstageisthereleaseofelectricsupplyformsub-station.Alltheseprocesses
areundertakenbydifferentworkers.Forremovinganydefectinthefunctioningofthe
system,theseareanotherteamofworkersfrommaintenancedepartmentwhoputthe
systeminorder.
Divisionoflabourincreasestheefficiencyofworkersandleadtothepossibilityof
inventionsanddiscoveriesbecauseofrepetitivenatureofwork.Itencouragestheuse
of machines in place of manual labour. It also leads to the use of capital intensive
techniqueofproduction.
INTEXT QUESTIONS 7.2
1. DefinelabourIntensiveTechnology.
2. DefineCapitalIntensiveTechnology.
3. Giveoneexampleeachofproductbasedandprocessbaseddivisionoflabour?
7.3 TOTAL PRODUCT, AVERAGE PRODUCT AND
MARGINAL PRODUCT
Therearemainlythreeconceptsrelatingtoproductionofacommodity(i)TotalProduct
denotedasTP(ii)AverageProductdenotedasAPand(iii)MarginalProductdenoted
as MP.
1. TotalProduct(TP):TPreferstothetotalquantityofoutputofacommodityata
particularlevelofemploymentofaninput,saylabour,whentheemploymentofall
other inputs is unchanged. TP can be increased or decreased by increasing or
decreasingtheunitsoflabour.SoamountofTPdirectlydependsuponamountof
labouremployed.Becauseitcanbechanged,labouriscalledvariablefactor.
2. AverageProduct(AP): APistheoutputperunitofavariableinput,saylabour.
ItcanbeobtainedbydividingTPbythenumberofunitsofavariablefactor.
TP
AP
L
=
whereListhenumberofunitsoflabourinput.
3. Marginal Product (MP): MP may be defined as increase or decrease in TP
resulted due to addition of one extra unit of labour, keeping all other inputs
unchanged.InordertoincreaseoutputorTPwehavetoincreasetheemployment
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oflabourby1ormorenumberofunits.Thesmallestnumberbywhichlabourcan
beincreasedis1. Since‘marginal’meansverysmall,accordinglywecansaythat
MPistheoutputcontributedbythelastunitoflabour.Sowecanwrite,
MP = TPL – TPL–1
Example
Onelabourerworkswithasewingmachinetostitchtwoshirts.Anotherlabourer
joinsandthetwocouldstitch6shirts.CalculateMP?
Ans: MP = TP2 – TP2–1 = TP2 – TP1 = 6 – 2 = 4
‘L’istheunitsoflabouremployedorthelevelofemploymentofvariablefactor,i.e
labour.Itisgivennumericallyas0,1,2,3,4,5,6,7,8,9,andsoon.L=0meansthere
isnoemploymentoflabour.
‘L– 1’is the previous level of employment, given ‘L’. For example, if L= 3, then
L –1 = 2 and so on.
The three concepts of TP,AP and MP can also be understood with the help of the
followingnumericalexample.
Table9.1TotalProduct,AverageProductandMarginalProduct
Unitsoflabour(L) TP AP MP
(Units) (Units) (Units)
0 0 - -
1 10 10 10
2 22 11 12
3 36 12 14
4 44 11 8
5 50 10 6
6 54 9 4
7 56 8 2
8 56 7 0
9 54 6 –2
10 50 5 –4
In the table above, L = Units of labour = 0, 1, 2, 3, 4, 5, 6, 7, 8, 9 and 10.
WhenL=1,itmeansnumberoflabourunitsorleveloflabouremploymentis1.Atthis
level TP= 10. We know thatAP = TP/L = 10/1 = 10.
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When L = 2, TP = 22. So AP = 22/2 = 11.
When L = 9, TP = 54. So AP = 54/9 = 6.
NowcalculateMP.Asperformulagivenabove,MP=TPL –TPL–1.
Let us calculate MP at L = 1. Here TPL means value of TP at L = 1 which is 10.
L– 1 refers to the previous level of employment of labour. Since L– 1 = 1 – 1 = 0,
TPL – 1 means value of TP at 0 or no employment. In the table at 0 units of labour
TP = 0. So TPL – TPL – 1 = 10 – 0 = 10. Hence when unit of labour is 1, MP is 10.
Similarly,whenthereare8unitsoflabour,MP=TP8 –TP8–1 =TP8 –TP7 =56–56
= 0.
SinceMPisthedifferencebetweentwoconsecutivevaluesofTP,itcanbenegativealso.
InthetableMPat9unitsoflabouris–3.ThisisobtainedasTP9 –TP9–1=TP9 –TP8
= 54 – 56 = –2.
INTEXT QUESTIONS 7.3
1. Definemarginalproduct.
2. CalculateMPandAPwiththehelpofthefollowingtable.
Unitsoflabour TP(Units) MP AP
0 0
1 10
2 18
3 24
4 28
5 30
6 28
7.4 LAW OF DIMINISHING MARGINAL PRODUCT OF
LABOUR
LookatthevaluesofMPatdifferentunitsoflabourintable7.1.Withincreaseinthe
unitsoflabourfrom1onwardsandbyoneunitateachstagethevalueofMPincreases
forfirst3unitsoflabouri.efrom10atL=1to12atL=2to14atL=3.Thenthevalue
of MP decreases for next 4 units of labour i.e from 14 at L = 3 to 8 at L = 4 to 6 at
L=5to4atL=6to2atL=7 to0atL=8.FinallythevalueofMPbecomesnegative
7. MODULE - 3
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Notes
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atL=9.Inotherwordsafterincreasingtemporarilyforsometimethemarginalproduct
of labour eventually decreases. In general way, we can say that with continuous
increaseinthevariablefactorlabour,itsmarginalproductwillincreaseinitially
till certain point is reached, but after that it will decrease and may become
negative,keepingallotherfactorsunchanged.Thisispopularlyknownasthe
LawofdiminishingMarginalProductoflabour.
Tounderstandthelawproperlythinkthattherearetwofactorsofproduction,Labour
andCapital,wherecapitalisintheformofamachine.Saythatlabouristhevariable
factorwhichcanbeincreasedtoincreaseoutputandcapitalisthefixedfactorwhich
iskeptconstant.Inthebeginningonly1labourerisworking.Maybeonelaboureris
notsufficienttousethemachineefficiently.Sotheunitoflabourisincreasedto2and
thento3.Initiallywhenweincreaselabour,itbecomesfruitfulbecausethelabourerscan
handledifferentworksaspertheirefficiencyandchoice.Sooutputoftheextraunitof
labourincreases.Butthereisalimittowhichlabourcanbeincreasedbecausethenwe
mayrequireanothermachine.Butmachineisafixedfactorandcannotbeincreasedor
decreased.Soasaresultofincreasingthevariablefactorlabouronly,machinegetsover
used.Alsotheworkofamachinecannotbedonebythelabourersthatwereadded.
Sotheoutputofeachoftheextraunitoflabouri.e.MPoflabourbeyondapointstarts
decreasing.
Averypertinentquestionariseshere.Towhatextentcanthevariablefactorbeincreased
oremployed?Togettheanswer,seethetable7.1again.Seethatwhenlabourhasbeen
increasedupto9,theMPhasstartedbecomingnegative.Atemploymentofthe9th unit
oflabourMPis-2andthenat10th unitoflabouritis-4.BecauseofthistheTPalso
hasstartedfalling.Thisclearlyimpliesthatlabourshouldnotbeincreasedupto9and
further.Employmentoflabourshouldstopbefore9unitswhichmeanslabourshouldbe
increasedoremployedupto8units.Seethatwhen8unitsoflabourareemployedthe
MPhasbecomeminimumatthispointwhichis0andTPhasbecomethemaximum
whichis56.
Hence we learn that increase in the variable factor should take place till the point
where its marginal product becomes minimum and stop employing further before
the marginal product becomes negative.
INTEXT QUESTIONS: 7.4
1. Statethelawofdiminishingmarginalproduct?
2. WhatisthelevelofTotalProductwhenmarginalproductisminimum?
3. Whentheproducershouldstopemployingmorelabour?
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7.5 PRODUCTION PROCESS
Productionprocessinvolvesprocuringorarrangingthefactorsofproductionfromthe
ownersofthefactors,formingtherightcombinationoffactors,purchasingandcreating
aninventoryofrawmaterialsforitsuseintheproduction,producing,storingandfinally
sellingtheoutput.
Somebodyshouldtakeleadinorganisingtheproductionactivity.Thepersonwhotakes
such lead is called an entrepreneur. In lesson 6 you read that an entrepreneur is the
organizerofaproductionunit.Entrepreneurshipistheartoforganisingtheproduction
activitybytheentrepreneur.Hehastomakeeffortstobringlabourbypayingwage.
Similarly,landandbuilding,machineryetchavetobepurchasedorprocuredeitherby
takingloanorbypayingrentandinterestrespectively.Entrepreneurhimselfcankeep
somemarginintheformofprofitforallhisefforts.
INTEXT QUESTIONS 9.5
1. Defineproductionprocess.
2. Whoorganisestheproductionactivity.
7.6 ROLE AND IMPORTANCE OF FIRMS AND
INDUSTRIES
Afirmisanindividualproductionunitwhichproducesgoodsandservicesfor
sale in the market. There are certain production units like charitable schools,
charitablehospitalsandgovernmentunitsetc.provideservicesnottoearnprofit.They
workforsocialwelfare.Normallyafirmisconcernedwiththeproductionofasingle
commodity.
Industryisagroupofallthefirmsmakingproductionofacommodity(onetypeofgood).
ForexampleBataShoeCompanyisafirmwhichmakesshoesbuttheshoeindustry
includesallthefirmsproducingshoes.SoBata,Action,Liberty,Adidas,Nikeand
Reeboketcformtheshoeindustry.
Therearevarioustypesofindustriessupplyingusdifferenttypesofgoodsandservices.
Forexampleagricultureindustrysuppliesusfoodgrains,vegetable,fruits,cotton,
pulses,milkandbutteretc.Thesethingsarerequiredbyallus.Inthesamewayother
industriessupplyvariousothergoodsandserviceslikeclothes,televisions,computers,
scooters,refrigerators,airconditioners,carsetc.Soalltheseindustriesplayavitalrole
inourdaytodaylife.
Theimportanceofthefirmsandindustriescanbeexplainedinbriefasgiven.
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1. Goodsandservicesforconsumption:Thesedayshumanwantsaregrowingat
afasterrate.Inordertosatisfythesewantsvarioustypesofgoodsandservicesare
requiredforourdailyconsumption.Allthesegoodsandservicesareprovidedby
firmsandindustries.
2. Goodsforinvestment:Werequirevarioustypesofgoodsforinvestment.We
require machines, plants, transport vehicles likes buses, trucks, railways and
aeroplanes,shipsetc.andvariousotherthingsforinvestment.Allthesethingsare
producedbyfirmsandindustries.
3. Employmenttomanypersons:Firmsandindustriesarethesourceofemployment
tothepeople.Mostofthepeoplegetemploymentinfirmsandindustriesbywhich
they get income for the satisfaction of their wants. We cannot live without
employment.Sotheimportanceoffirmsandindustriescaneasilybeunderstood.
4. Infrastructureforthedevelopmentofthecountry:Theyprovideusenergy,
transport, communication, health, education and housing which is the basic
requirementtoprovideinfrastructureforthecountry.Withoutthedevelopmentof
infrastructuretheallrounddevelopmentofthecountryisnotpossible.Sowecannot
denytheroleandimportanceoffirmsandindustries.
INTEXT QUESTIONS 7.6
1. Whatisafirm?
2. Givethemeaningofindustry?
7.7 IDENTIFYING VARIOUS TYPES OF PRODUCERS
IN THE ECONOMY
On the basis of ownership the production units can be broadly classified into the
following.
(i) Indigenousproductionunits
(ii) Foreignproductionunits
Letusdiscussthemonebyone.
7.7.1 Indigenous Production Units
Theproductionunitslocatedinacountryandownedbytheresidentsofthecountryare
called indigenous production units. Around us most of the production units are
indigenous.Farmhousesinthevillages,shops,smallfactories,bigfactories,hospital,
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school,college,cinemahall,restaurant,dairyfarm,governmentoffices,self-employed
doctors,lawyersandteachersetcareallexamplesofindigenousproductionunits.Since
production units are further divided into private and government, the indigenous
productionunitscanbeclassifiedinto
Privateproductionunits
Governmentproductionunits
7.7.1.1 Private Production Units
Mostoftheshops,offices,factoriesareownedbyprivatepersonsorgroupsorfamilies.
Theyproducegoodsandservicesforsaleinthemarketwiththeaimofearningprofit.
Privatesectorunitscanfurtherbeclassifiedonthebasisofnumberofownersofsuch
unit.Mostofthesmallunitslikelabour,washerman,cobbler,tailor,milkvenderetc.are
ownedbyasingleperson.Butsomeoftheproductionunitsmaybeownedbymorethan
oneperson.Thenumberofpersonsmaybetwo,twenty,hundred,thousandoralakh
orevenmore.Onthebasisofnumberofowners,privatesectorproductionunitscan
beclassifiedintothefollowingcategories.
(a) Soleproprietorship
(b) Partnership
(c) CompanyorCorporations
(d) CooperativeSociety
(e) Privatenon-profitorganizations(N.P.O.)
(a) Soleproprietorship:Suchproductionunitsareownedbyasingleperson.Heis
responsiblefortheprofitandlossoftheproductionunits.Heisresponsibleforthe
managementandworkingoftheproductionunit.
(b) Partnership: Such production units are owned by two or more persons.
Maximumnumberis20.Ownersofsuchproductionunitsarecalledpartnersof
thecompany.Allthepartnersarecollectivelyresponsibleforthemanagementand
workingoftheproductionunit.Theshareofprofitandlossisdistributedamong
thepartnersaccordingtoagreementmadeatthetimeofformingthepartnership.
(c) CompanyorCorporations:Itisaproductionunitownedbyalargenumberof
persons.Thesuminvestedinthecompanyisdividedintoshares.Thebuyersof
thesesharesarecalledshareholders.Theyarealltheownersofthecompany.In
privatecompanytheminimumnumberofshareholdersistwoandthemaximum
numberis50.Butinpubliccompanyminimumnumberissevenbutthereisno
maximumlimit.Theseshareholdersselectsomepersonsforthemanagementofthe
company who are called directors of the company. These companies are
establishedundercompaniesact1956.Theprofitofthecompanyisdistributed
11. MODULE - 3
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among the shareholders according to the shares held by them. Tata iron steel
company,Relianceindustrieslimited,Bajajautolimited,LiptonIndialimitedare
someoftheexamplesofacompany.
(d) Cooperative society: It is also a production unit managed by a number of
persons.Itisavoluntaryassociationofpersonsformutualbenefit.Itsaimsare
achievedthroughselfhelpandcollectiveefforts.Insamerespectsitissimilarto
the company. Its owners are also called shareholders. It works according to
cooperativesocietiesAct1912.Theminimumnumberofshareholdersistenbut
thereisnoupperlimit.Theshareholdersselectsomepersonsamongthemselves
forthemanagementsofthesociety.Theprofitsofthesocietyaredividedamong
theshareholdersaccordingtothesharesheldbythem.Cooperativestoreswhich
sellvariousgoodstoconsumersatreasonablerates,cooperativehousingsocieties
whichprovideflatsandhousestoitsmembersaretheexampleofcooperative
societies.KendriyaBhandarwhichprovidesvariousitemstoconsumersisavery
bigcooperativesociety.
(e) PrivateNon-profitOrganizations:Thereareprivateproductionunitswhichare
runbyinstitutions,suchastrusts,societiesetc.likecharitablehospital,charitable
school,welfaresocietiesetc.Suchproductionunitsprovideservicesmainlywith
theaimofservingthememberofsocietyasawholewithoutanyaimtoearnprofit.
7.7.1.2 Government Production Units
Governmentprovidesalotofservicessuchaseducation,healthcare,lawandorder,
postandtelegraph,transport,telecommunicationandbroadcastingetc.Someofthe
organizationsprovidingtheseservicesarerunbytheDepartmentsandMinistriesofthe
government.TheyarecalledDepartmentalEnterprises.SomeexamplesofDepartmental
EnterprisesareIndianRailwaysundertheMinistryofRailways,AllIndiaRadioand
Doordarshan which are sister concerns of Prashar Bharti under the Ministry of
Information and Broadcasting etc. The government has direct control over the
functioningoftheseenterprises.
Thereisanothertypeofgovernmentproductionunitswhicharesupportedandfunded
by the government but function independently. They are big Corporations and
autonomousinnature.Theseunitsarenon-departmentalenterprisesandcalledPublic
Sector Undertakings. Some examples of Public Sector Undertakings are Indian
Airlines,HindustanMachineTools(HMT),MineralsandMetalsTradingCorporation
(MMTC),LifeInsuranceCorporation(LIC),GeneralInsuranceCorporations(GIC),
IndianOilCorporation(IOC)etc.
7.7.1.3 Foreign Production Units
Aforeignproductionunitislocatedinthecountrybutisownedbyforeignersornon-
residentsofthecountry.Insuchproductionunitsthecontributionofforeignersmustbe
morethan50%oftotalcapital.
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Theforeignproductionunitsarefurtherclassifiedinto:
(i) Multinationalsand
(ii) Collaborations
(i) Multinationals:Thesearefirmswhichhavetheirmainofficeinonecountrybut
havetheirbusinessactivitiesspreadinmanycountries.ThesearecalledMulti-
NationalCorporations(MNC)becausetheyoperateinmorethanonecountry
otherthanthecountryoftheirorigin.SomeexamplesofMNCsinIndiaare-Coca
Cola, Pepsi Cola, Johnson & Johnson, Microsoft, Nokia, Sony, Samsung,
InternationalBusinessMachine(IBM),Nestle,Vodafone,Airtel,LG,Google,
FordMotors,Hyundaietc.
(ii) Collaborations:Theseareproductionunitsinwhichforeignersanddomestic
entrepreneursparticipatejointly.Suchproductionunitsarepartlyindigenousand
partlyforeign.Thesearetreatedasforeignproductionunitsintermsofownership
if more than 50% of its total capital is contributed by the foreigners or non-
residents.Agood example of collaboration of Indian company with foreign
companyis-Maruti-SuzukiLimited,
INTEXT QUESTIONS 7.7
Tickmark(√)thecorrectanswers
1. Aproductionunitownedbyasingleindividual,isknownas:
(a) Apartnership (b) Aprivatecompany
(c) Soleproprietorship (d) Apublicproductionunit
2. Inapartnershipthemaximumnumberofpartnersis:
(a) 5 (b) 10
(c) 15 (d) 20
3. IndianRailwaysisa:
(a) Privateunit (b) Publicunit
(c) Soleproprietorship (d) Partnership
4. Minimumnumberofmembersinacooperativesocietyis:
(a) 20 (b) 15
(c) 10 (d) 5
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5. Maximumnumberofshareholdersinapubliccompanyis:
(a) 10,000 (b) 15,000
(c) 20,000 (d) Nolimit
6. AGovt.productionunitregisteredundercompaniesAct1956isa:
(a) Astatutorycorporation (b) Governmentcompany
(c) Departmentalenterprise (d) Nonofthese
7. Theminimumnumberofownersinaprivatecompanyis:
(a) 7 (b) 10
(c) 2 (d) 20
8. Inwhichsituationaproductionunitisnotconsideredasaforeignproductionunit:
(a) entirecapitalisinvestedbynonresident
(b) morethan50%ofthetotalcapitalisinvestedbynon-residents
(c) Residentshavemorethan50%ofthetotalcapital
(d) Lessthan20%oftheinvestmentismadebyresident
WHAT YOU HAVE LEARNT
Productionprocessistheprocessofcombininginputs,utilisingtheirservicesand
makingproductionofgoodsandservices.
Theentrepreneurorganizestheproductionactivitiesforwhichheearnsprofitor
bearsloss.
Therearetwotypesoftechnologiesofproduction(i)labourintensiveinwhichwe
makemoreuseoflabourandlessuseofcapital(ii)capitalintensiveinwhichwe
makemoreuseofcapitalandlessuseoflabour.
Divisionoflabourisoftwotypes:
(i) Product based division of labour in which a worker specializes in the
productionofacommodity
(ii) Processbaseddivisionoflabourinwhichtheproductionofacommodityis
divided into different processes and a worker specializes in one or two
processesonly.
Productionistheresultofthecombinedeffortsofallthefourfactorsofproduction
i.e.land,labour,capitalandentrepreneurship.
Total Product (TP) refers to the total quantity of output of a commodity at a
particularlevelofemploymentofaninput,saylabour,whentheemploymentofall
otherinputsisunchanged.
AverageProduct(AP)istheoutputperunitofavariableinput,saylabour.
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MarginalProduct(MP)maybedefinedasincreaseordecreaseinTPresulteddue
toadditionofoneextraunitoflabour,keepingallotherinputsunchanged.
LawofdiminishingMarginalProductoflabourstatethatwithcontinuousincrease
inthevariablefactorlabour,itsmarginalproductwillincreaseinitiallytillcertainpoint
isreached,butafterthatitwilldecreaseandmaybecomenegative,keepingallother
factorsunchanged.
Firmisaproductionunitwhichmakesproductionofgoodsandservicesforsalein
the market in order to earn profit. Industry is a group of all the firms making
productionofsimilarcommodity.Bothfirmsandindustriesareveryimportantfor
theeconomicdevelopmentofthecountry.
Onthebasisofownershipproductionunitsareclassifiedintoindigenousandforeign
productionunits.Indigenousunitsareownedbyresidentsofthecountryandforeign
unitsareownedbynon-residents.
Indigenousunitsarefurtherclassifiedintoprivateandpublicsectorproductionunits.
Privateunitsareownedbyprivatepersonsandinstitutions.Publicsectorunitsare
ownedbygovernment.
Privatesectorunitsareclassifiedinto(i)soleproprietorship(ii)partnership(iii)
Companyand(iv)Cooperativesocieties(v)Privatenon-profitorganisation.
AcompanyiscreatedundercompaniesAct1956.Theminimumnumberofowners
inacompanyis7.Thereisnomaximumlimit.
A cooperative society is created under co-operative society Act 1912. The
minimumnumberofshareholdersis10.Thereisnomaximumlimit.
Government production unit are classified into (i) Departmental and (ii) non-
departmentalenterprises.Departmentalenterprisesareunderthedirectcontrolof
someministry.Non-departmentalenterprisesareautonomousknownaspublic
sectorundertakingcorporation.
Productionunitsownedbyforeignersarecalledforeignproductionunits.Someare
multinationalsandsomearecollaborations.Amultinationalhasitsheadofficeinone
countrybut itsproductionunitsinmanycountries.Collaborationisjointlyowned
byresidentsandnon-residents.
TERMINAL EXERCISE
1. Defineproductionprocess.
2. Howdoesanentrepreneurorganiseaproductionunit?
3. Distinguishbetweenlabourintensiveandcapitalintensivetechnologyofproduction.
4. Distinguishbetweenproductbasedandprocessbaseddivisionoflabour.
5. Distinguishbetweenindigenousproductionunitsandforeignproductionunits.
6. Distinguishbetweenprivatesectorandpublicsectorproductionunits.
7. Distinguishbetweensoleproprietorshipandpartnership.
