The document discusses different types of production units and how they are classified. It defines a firm as a single production unit and industry as a group of firms producing the same good. It distinguishes between labour intensive and capital intensive production, as well as product-based and process-based division of labour. It also differentiates between indigenous and foreign production units, and describes various forms of business ownership like sole proprietorship, partnership, company, and cooperative society. It concludes by distinguishing between departmental and non-departmental public sector units, statutory corporations and companies, as well as multinational companies and collaborations.

1. Production
is defined as changing of inputs into outputs.
The goal of production is to
satisfy wants.

2. Producer and Production
• The Producer brings together the factors like Land, Labour, capital and
entrepreneurship along with raw materials in order to make goods and
services.
• The Producer produces maximum quantity of goods at minimum
cost per unit.

3. Inputs and Outputs
• The resources used in production are called inputs
and the goods and services produced are called the outputs.
• For example for the production of rice, we require land, seeds, fertilizers,
tools, water, tractor etc.
• All these are inputs which go into the production process to produce the
output RICE.

4. Production Function
• 1) Production function gives the relationship
between inputs and outputs of a firm.
• 2) It gives the maximum quantity of output that
can be produced with the given quantity of
inputs.

5. Different technologies of Production
Production activity can be organised in 2 ways
Method/Technology of Production Division of Labour (DOL)
Labour Intensive
Technology
Capital Intensive
Technology
Product
based DOL
Process based
DOL
Division of Labour increases the efficiency of workers and leads to inventions and
discoveries.

6. Mr Rajan’s Problem
• Let me introduce you to Mr Rajan.
• He wishes to start a factory and would like to know how many labourers
he should keep.
• Let us see if we can help him…..
• First let us see with every increase in labour(input) how the total quantity
produced changes.
• We will start with 1 labourer and then we will keep adding one extra
labourer.

7. Labour (L)
Employed in production
Total Production (TP)
With given Labour
0 0
10
22
36
44
1
2
3
4
5
6
7
8
9
10
54
50
56
56
54
50

8. Total Product
• We learnt that :
• Total Product( TP) refers to the total quantity of output
produced with the given quantity of labour.
• TP depends on quantity of labour used.
• TP can be increased or decreased with increasing and decreasing
the units of labour.

9. Average product
• We saw that as the No. of Labourer increases the Total Product
also changes.
• In the beginning it increases then becomes same and then starts
decreasing.
• Let us divide the total output with the no. of labourers and see
how much is the average quantity produced by each labour .
The average product is got by dividing total production by the number of
units of variable input(Labour) employed. AP = ( TP/L)

10. 1 10 boxes 10/1 = 10
2 22 boxes 22/2 = 11
3 36 boxes 36/3 = 12
4 44 boxes 44/4 = 11
5 50 boxes 50/5 = 10
6 54 boxes 54/6 = 9
7 56 boxes 56/7 = 8
8 56 boxes 56/8 = 7
9 54 boxes 54/9 = 6
10 50 boxes 50/10 = 5

11. Findings…
• Here we saw that :
• Labourer Total Product Average Product
• when L =1, TP=10, AP = 10 (this is because it was the first production).
• When L= 3, TP=36, AP= 12 (AP highest)
• When L=4, TP=44, AP= 11 ( AP has started to fall)
• When L=7, TP=56, AP= 8 (TP highest)
• When L=8, TP=56, AP= 7 (TP highest and the average fell to 7)
• When L=9, TP=54, AP= 6 (TP decreases and AP also decreases).

12. Marginal Product.
• Now let us see one more study i.e. Marginal Product.
• The marginal product (MP)may be defined as the addition made to TP by
increasing an extra unit of labour.
• i.e. by increasing one additional labour , how much quantity did this
additional labour add to the Total product.

14. Law of Diminishing Marginal Product of Labour
• With every increase in labour
for the first 3 units of labour MP increases.
Then it starts to decreases un till at L=8 it is 0
and at L= 9 it becomes negative.
So we can say…
With every increase in labour,
the marginal Product will increase in the beginning till a certain
point is reached,
after that it will decrease
and may become negative.
This is called the Law of Diminishing Marginal Product of Labour.

15. Conclusion of our report for Mr Rajan
• We learn that
increase in variable factor(Labour)
should take place till the point where
Marginal Product becomes minimum
and stop employing further
before marginal product becomes negative.
• STOP WHEN TP IS MAXIMUM AND MP IS MINIMUM(BEFORE NEGATIVE)
• So we must advice Mr Rajan that Labour should be stopped before 9
i.e. at 8
• AT L= 8 the Total output is 56 is maximum and the MP is minimum at 0.

16. Let us try one more ….
Units of Labour TP AP(TP/L) MP
0 0
1 10
2 18 (18/2)
3 24 (24-18)
4 28 (28/4)
5 30 (30-28)
6 28

17. Role of Importance of Firms and Industries
• A Firm is an individual production unit which produces goods and
services for sale in the market.
• It provides:
– Goods and services for consumption.
– Goods for investment
– Employment to many
– Infrastructure for the development of the country.

18. Production Units
Indigenous Production units Foreign Production Units
Private Prod. Units Government Prod Units
Sole Proprietorship
Partnership
Company or
Corporations
Private non-profit
organisation
Multinationals Collaborations
Co-operative society
Departmental
Enterprise
Non-Departmental Enterprises

19. Various types of producers
• Indigenous production units:
• Production unit located in a country and owned by the residents of the
country are called indigenous production.
• Eg : Farmhouses in the villages, Hospitals, small factories.
• These are further divided into :
– Private production units and
– Government Production units.

20. Private Production Units
• Shops, Offices, Factories owned by private persons or groups.
• They produce goods and services with the aim of earning profit.
• They can further be classified on the basis of number of owners:

21. Sole Proprietorship (Sole- one; proprietor- owner)
• A Production unit owned by a single person.
• The single owner is responsible for the management of
the unit.
• The owner pockets all the profits and bears all the
losses.
• Responsible for managing and working of the
production unit

22. Partnership
• Owned by 2 or more(maximum 20)
• Owners are called partners
• All partners are collectively(together) responsible for
managing and working of the production unit
• Share and loss distributed among partners as per
agreement made at the time of forming the partnership

23. Company or Corporations
• Owned by large number of persons.
• The sum invested is divided into shares.
• The buyers of the shares are called shareholders.
• They are all the owners of the company.
• Minimum number of shareholders 2
• Maximum number 50.
• (In a Public Limited company Minimum is 7 and max is no limit)
• They select a Director.
• Profit divided among shareholders.
• Established under companies act 1956.
• E.g. Reliance industries limited, Bajaj Auto Limited

24. Cooperative Societies
• Production unit managed by a number of persons.
• Its aims are achieved through self help and collective efforts.
• Its owners are called shareholders.
• It is registered under the Indian Co-operative societies Act of 1912.
• The minimum number of owners is 10 , max no limit.
• The Profits are divided among shareholders.
• They sell goods at reasonable rates.
• 3. Examples – AMUL, Apna Bazaar etc.

25. Private non-profit organizations.
• They are run by institutions, trusts, societies etc.
like charitable hospitals, charitable schools,
welfare societies etc.

26. Government Production units
• Departmental Enterprises: Government provides services like education
etc, and they have direct control over the functioning of these
enterprises. They are called Government Departmental enterprises
• Government provides services
– Education
– Healthcare
– Law and order
– Post and telegraph
– Transport
– Telecommunications
– Broadcasting
• E.G. All India Radio, Doordarshan, Ministry of railways, Ministry of
Information and Broadcastings.

27. • There are production units which supported and funded by the
government but function independently(government does not have
direct control over them).
• They are non-departmental enterprises and are called Public Sector
undertakings.
• E.g : Hindustan Machine Tools(HMT)
– Life insurance corporation(LIC)
– General Insurance corporation(GIC)
– Indian Oil corporation(IOC) etc.

28. Foreign Production
• Production unit located in the country but owned by foreigners or non-
residents of the country.
• Contribution of foreigners must be more than 50% of total capital.
• They are further classified as :
Multinationals(MNC): They have their main
office in one country but their business
activities are spread in many countries.eg.
Coco-cola, Pepsi, Nokia, Samsung, Acer etc.
Collaborations: Production unit in which
foreigners and domestic entrepreneurs
participate jointly.(partly indigenous &
partly foreign)
If 50% of total capital is owned by foreigners
it is a foreign production unit. Eg. Maruti-
Suzuki Limited.

29. Question review
• A production unit owned by a single individual ?
Sole Proprietorship
• In a partnership the maximum number of partners?
20
• Indian railways is a : Private unit, Public unit, Sole proprietorship, Partnership ?
Public
• Minimum number in a cooperative society is ?
10
• Maximum number of shareholders in a public company is ?
No limit
• The minimum number of owners in a private company?
2
• A production unit have more than 50% of the total capital invested by non-residents?
Foreign Production unit.

30. Distinguish between

31. Firm Industry
1. It is a single production unit which produces a good
or service.
1. It is a group of firms producing the same good or
service.
2. Examples – Bata, Liberty, Reebok, Adidas. 2. Examples – shoe industry includes Bata, Liberty,
Reebok and Adidas.

32. Labour intensive Capital intensive
1.It uses more of labour and less of capital. 1. It uses more of capital and less of labour.
2. It is mainly used in small scale industries. 2. It is mainly used in large scale industries.
3. Examples- garment factory, pot making, wood carving
etc.
3. Examples- iron & steel industry, cement industry, automobile
industry.
Product based Process based
1. Worker specializes in the production of a single
good.
1. Worker specializes in one or two processes in the
entire production of a good.
2. This is used in small scale production. 2. This is used in large scale production.
3. Examples- potter, cobbler, carpenter, farmer etc. 3. Examples- bread production, chocolate production
tec.

33. Indigenous unit Foreign unit
1. These units are owned by residents of a country. 1. These units are owned by non-residents.
2. These units can be further classified as private and
public units.
2. These units can be further classified as multinational
and collaboration.
3. Examples – shops, factories, cinema halls etc. 3. Examples – Microsoft, LG, Sony etc.
Sole Proprietorship Partnership
1. This is owned by a single person. 1. This can have a minimum of 2 owners and a
maximum of 20.
2. The single owner is responsible for the management
of the unit.
2. All partners are together responsible for
management of the unit.
3. The owner pockets all the profits and bears all the
losses.
3. Profits and losses are shared by all the partners.

35. Departmental Non-Departmental
1. These are under the direct control of some
government ministry.
1. These are independent units.
2. Parliament has direct control over their
functioning.
2. Parliament does not have control over their
functioning.
3. Examples – Indian Railways comes under the
Ministry of railways; Doordarshan comes under
the ministry of Information and Broadcasting.
3. Examples – State Bank of India, Life Insurance
Corporation of India, Oil and Natural gas
Commission(ONGC).
Statutory Corporation Company
1. it is formed under the Special Act of State
Legislative Assemblies.
1. It is formed under the Indian Companies Act of
1956.
2. Examples – SBI, LIC, ONGC etc. 2. Examples – Hindustan Steel Ltd., Indian
Telephone Industries etc.
Multinational Collaboration
1. This has it’s main office in one country and branches
in other countries.
1. This is a joint venture between an indigenous unit
and a foreign unit.
2. This operates in many countries. 2. This operates in one country.
3. Examples – Microsoft, Sony, Samsung, LG. 3. Examples – Kawasaki Bajaj, Maruti Suzuki.