Production can simply be defined as the creation of utility or production is the creation of goods and services which satisfy human wants. All goods and services produced must possess utility, which means that they must be capable of satisfying certain human wants.
Production can also be defined as the transformation of raw materials into finished goods and their distribution to the consumers to satisfy their wants. Production also means the various economic activities aimed at the creation of goods and services and the distribution of these to the final consumers for the satisfaction of human wants.
Production include the creation of tangible goods such as clock, cars, tables, TV sets, houses, books, etc ., as well as services rendered by some professionals such as doctors, lawyers, hair dressers, soldiers, police, teachers, mechanics, etc.
It should be noted that production is said to be complete when the goods and services produced get to the final users or consumers. The production process involves three major groups of people. These are producers, distributors and consumers.
STAGES OR TYPES OF PRODUCTION
Production is grouped into the major categories. These are direct and indirect production.
(a) Direct production
Direct production is the type of production in which an individual produces goods and services only for family use or consumption. The goods and services produced are not for sale, rather they are to be used by the family. It is usually very small in size and family labour is usually employed.
(b) Indirect production
Indirect production is the type of production in which goods and services are produced in large scale, mainly for sales or exchange for other needs. This type of production involves the use of modern equipment and skilled labour to be able to make surplus goods and services that the producer would exchange to get money, which he will use to satisfy other wants. It is practically impossible for a single producer to satisfy all his wants without depending on others for exchange of goods and services.
Indirect production is sub-divided into three major groups. These are primary, secondary and tertiary production.
- Primary production: Primary production refers to the extraction of raw materials provided by nature. It is concerned with the process of obtaining raw materials or resources in their natural form from the land, air and water. Primary production forms the basis for further production. Examples of primary production include agriculture, mining, fishing, lumbering, etc.
- Secondary production: Secondary production involves the transformation or conversion of basic raw materials or semi-finished goods into final forms that are acceptable to the consumers. Secondary production embraces all forms of manufacturing and construction. The raw materials or resources obtained from the extractive sector are transformed into finished products such as processed food, houses, roads, clothes, cars, etc.
- Tertiary production: Tertiary production is concerned with the provision of commercial and professional services to the people. The goods produced at the primary and secondary production levels are distributed to the people for consumption. The people involved in this aspect of production include those in the commercial services like wholesalers, retailers, transporters, etc, as well as those involved in rendering professional services like soldiers, policemen, doctors, lawyers, musicians, hair-dressers, teachers, etc.
FACTORS THAT DETERMINE THE VOLUME OF PRODUCTION
- Amount of Capital: The amount of capital available to a producer determines the volume of production. The greater the amount of capital available, the higher the volume of production.
- Availability of raw materials: The raw materials available will determine the volume of production. The more the raw materials available, the greater the volume of production.
- Management: The management put in place for the production of goods and services determines the volume of production. Efficient management will increase the volume of production.
- The market size: The size of the market refers to the demand for goods produced. The greater the demand for the goods; the greater the volume of production.
- Efficiency of other factors of production: The more the efficiency of other factors of production, the more the increase in the volume of production.
- Level of technology: The use of modern technology do lead to high volume of production as against the use of local technology, which can never increase the volume of production.
- Storage facilities: When storage facilities are available for storing produced goods, this will encourage or lead to high volume of production.
- Nature of the goods: If the goods produced are durable, they can be stored and this encourages high volume of production, but perishable goods which cannot be easily stored can lead to low volume of production.
IMPORTANCE OF PRODUCTION
Production is important because of the following reasons:
- Availability of goods and services: Production helps to ensure that goods and services are made available for use by human beings.
- Improvement in standard of living: Production helps to ensure adequate improvement in the standard of living of the people.
- Provision of employment: Continuous production ensures the employment of many people.
- Increase in wealth of people: Production assists people to accumulate wealth as a result of continuous employment.
- Increase in export potential: Production also assists a state or nation to boost her export of goods and services to other nations.
- Acquisition of skills: The engagement of people in production make them acquire special skills.
FACTORS OF PRODUCTION
Factors of production refer to agents, components or resources which are combined
together to produce goods and services. There are four factors of production. These are:
Land is defined as a free gift of nature. Land does not only include land surface of the earth but all other free gifts of nature or natural resources like forest, mineral resources, rivers, oceans, atmosphere, etc. Unlike other factors of production, the supply of land is limited. The reward for land is rent.
Characteristics or features of land
- Land is immobile: Land cannot be moved from one geographical location to another.
- The supply of land is fixed: It is practically impossible for man to increase the quantity of land.
- Land is a free gift: Land is given freely by nature.
- Land is subject to diminishing returns: When a piece of land is frequently brought under cultivation, it becomes less productive.
- Variability: The quality and value of land varies from one place to another as some areas of land are more fertile than others.
- Rent: The reward for land is classified as rent.
- Land has no cost of production: No cost was involved in bringing land into existence.
- Land is heterogeneous: No two parcels of land are the same in value or in other characteristics.
Importance of land
- Farming purposes: Land is used for the cultivation of both food and cash crops, e.g. maize, yam, cocoa, etc. Water provides irrigation for farming activities in dry areas.
- Livestock purposes: Land is also used for livestock production (i.e. rearing of animals), e.g. cattle, sheep, goat, poultry, etc.
- Fishery purposes: Land is used for fishery in rivers, seas and oceans. Fish ponds are also developed.
- Wild life purposes: Land is used for wildlife conservation, e.g. game reserves and national parks.
- As collateral security: Land with Certificate of Occupancy (C of O) is used widely as collateral to secure loans from banks, especially in urban centres.
- Construction purposes: Land is used for construction purposes, e.g. roads, airports, railway, etc. Sand, stone, gravel, granite, etc are raw materials used for building and road construction.
- Social or recreational purposes: Land can also be used for social or recreational purposes, e.g. stadia, schools, markets, cemeteries, etc.
- Residential buildings: Residential buildings and housing estates are sited on land.
- For industrial buildings: Industrial buildings are also sited on land.
- Sources of minerals: Land is the source of minerals like limestone, gold, tin, petroleum, etc, which can serve as revenue to the government.
- Transportation purposes: Land, air and bodies of water like rivers, oceans, lakes, etc serve as channels for the transportation of people and goods from one place to another.
Labour as a factor of production is defined as all forms of human efforts put into or utilised in production. It also refers to man’s mental and physical exertions in the process of production.
Human beings provide the necessary labour which combines with other factors to provide goods and services. The reward for labour as a factor of production comes in form of wages and salaries.
Types of labour
There are two main types of labour. These are:
- Unskilled labour: This category of labour requires little or no formal education. They do not use mental effort, rather, they make use of physical effort or energy in production, hence their jobs are popularly referred to as brown collar jobs. As a result of their low level of education, with some kind of training, they are usually employed as guards, messengers, cleaners, gardeners in companies and other places of employment.
- Skilled labour: This category of labour makes use of their mental effort in productive activities. This labour has undergone a relatively long and specialised type of training in institutions of higher learning. They usually hold administrative and managerial positions, e.g. accountants, lawyers, engineers, medical doctors, teachers, etc. Jobs by this category of workers are popularly referred to as white collar jobs.
Characteristics or features of labour
- Labour is mobile: Labour is mobile both geographically (from one place to the other) and occupationally (from one job to the other).
- Labour has feelings: Labour cannot be used anyhow as its consent must be sort before it is used in production.
- Labour is skilful: Labour becomes skilful through education and training.
- Labour is a human factor: Labour is a human factor hence its supply can easily be controlled.
- Labour requires motivation: For labour to perform efficiently and increase its productivity, it must be motivated in one way or the other.
- Labour is not predictable: Labour as a factor of production cannot be easily predicted.
- Labour is not fixed: The supply of labour, unlike land, is not fixed as it varies in quantity and quality.
- Labour is perishable: Knowledge can diminish overtime as a result of continued unemployment, under-employment, age and death.
- Labour controls other factors of production: Labour controls and combines all other factors of production to make them more meaningful to the society.
- Labour has initiative: Labour can act on its own initiative.
Importance of labour
Labour is very important in production because of the following reasons:
- Provision of personnel: Labour provides the required skills or personnel needed during the process of production.
- It influences other factors of production actively: Labour plays an active role on other factors of production because without labour, land and capital will remain useless.
- Production of goods and services: Labour, especially the active working population, provides goods and services needed by the populace, including the aged and the children.
- Operation of machines: Labour is required in industries to operate machines and carry out the various production processes.
Capital may be defined as man-made assets used in production. In other words, capital refers to man-made wealth or goods used to produce other goods and services. It may also be defined as the stock of previous wealth invested in order to produce future wealth.
Capital, when properly combined with other factors, produces goods and services. Examples of capital include physical cash, cutlass, hoe, machines, buildings, motor vehicles, raw materials, semi-finished goods, tools and other equipment used in the production of goods and services. The reward for capital is interest.
Characteristics or features of capital
- Capital is man-made: Capital in all forms is made by man before it can be used for production of goods and services.
- Capital is durable: Capital generally are durable assets, which can be used for production.
- Capital exists in different forms: Capital may be physical like building, motor vehicles, plants and other machinery or liquid like cash or money.
- Capital is subject to depreciation: Capital in most cases is subject to depreciation, especially physical assets like motor vehicles, buildings, plant and other machinery.
- It ensures large scale production: The existence of enough capital assists firms to embark on large scale production of goods and services.
- It promotes division of labour: The availability of enough capital helps to promote the practice of division of labour in many companies.
Types of capital
The different types or forms of capital include the following:
- Fixed capital: These are assets which are not used up in the course of production. Fixed assets include those durable assets of a business that can last for a very long time. These assets or capital do not change their form in the process of production. Examples of fixed capital include land, buildings, tools, motor vehicles, plants, machinery, etc.
- Circulatory or working capital: These are assets which are used up in the course of production. These consist of capital goods which either change their form or are used up in the process of production. Examples of working capital include raw materials, water, fuel, etc.
- Current or liquid capital: Current capital are the type of capital that are required for the day-today running of productive activities. They are also changed from one form to another. Examples include finished goods, money, etc.
- Social capital: This includes those forms of capital or assets provided by the government to aid production. Examples of social capital are amenities provided by the government such as roads, electricity, water, telephones, etc. These amenities, when they are readily available, aid the process of production.
Importance of capital
- Capital is used to start business: Capital is generally required by investors or entrepreneur to start business e.g. acquisition of land, purchase of raw material, building construction, etc.
- Capital is used to acquire assets: Assets for any business is usually acquired by the use of capital. Assets like land, building, machines, plants, etc are usually acquired with the aid of capital.
- Capital is used to pay salaries and wages: Capital especially cash or money is used to pay workers salaries and wages at regular intervals or at the end of the month.
- Capital is used to buy raw materials: Capital especially cash or money is used to buy raw materials that are used in the production of finished or semi-finished goods for human use.
- Capital is used as working capital: Capital is also required to be used as working capital in industries for the day to day running of a business outfit.
- Capital is used as a collateral to obtain loan or credit: Some capitals e.g. plants and machinery are used as collateral security to enable investors to obtain loan or credit from financial institutions like banks.
- THE ENTREPRENEUR
An entrepreneur can be defined as the factor of production that co-ordinates and organises other factors of production (Land, Labour and Capital) in order to produce goods and services. The entrepreneur bears the risks and takes major decisions of the business. He risks his capital in setting up the business with the aim of obtaining maximum profit.
In summary, the entrepreneur is the person who co-ordinates, controls and organises the process of production in order to make maximum output at minimum cost thereby making profits. The reward for entrepreneur is profit.
Characteristics of the entrepreneur
- Risk bearer: He risks his capital in the course of investment and whatever comes out of it, whether good or bad, he has to take.
- Organisation: He organises productive resources for the production of goods and services.
- Decision making: He takes decisions in the course of production, which can bring out better results.
- Controls other factors: He has absolute control over other factors of production, e.g. their combinations in order to get maximum production at minimum cost.
Importance or functions of the entrepreneur
- Decision making: The entrepreneur takes decisions during production process. He may take decision on what to produce, quantity to produce, what to supply, at what price to sell, etc. Good decisions taken will bring out good results.
- Provision of capital: The entrepreneur is responsible for the provision of capital for the business. The availability of enough capital will determine the level of success of the business. His capital may include physical cash, motor vehicles, building, plants and machinery.
- Risk bearing: The entrepreneur bears the risk associated with the business. Lots of risks are involved in all business set up, e.g. stealing, bad weather, fire, etc. When his goods are in high demand, he makes profit but when the reverse is the case, he suffers losses.
- Efficient management: The entrepreneur also ensures efficient management of the business by combining the other factors of production in order to maximise production and profits.
- Effective organisation: The entrepreneur also ensures an effective organisation of the business. He ensures that he has qualified personnel and assigns duties to them. He supervises them to ensure effective operations in the business.
- He determines Pricing Policy: The entrepreneur determines the pricing of the product.
- Organising Research Activities: He carries out research in order to increase the efficiency and productivity of the business.