Production is the process of creating utility. In production there are four types of utilities which are form utility, time utility, place utility and possession utility.

• To the general public***,*** production refers to the process of making goods either for sale or for direct consumption e.g. cultivation of maize partly for domestic consumption and other part for sale.
• In economics, production is the process of making goods for sale. It is also known as indirect production.

Direct production refers to the process of making goods and services for direct consumption or use. General production involves employing the factors of production by combining them to produce goods and services which aim to satisfying wants. TYPES OF PRODUCTION There are two major types of production these are;-

1. Direct production.
2. Indirect production.

A.DIRECT PRODUCTION****Direct production is the type of production carried by a person in order directly to satisfy his or her own wants or production for own consumption. It is mainly for subsistence of which the production is very low. B. INDIRECT PRODUCTION****Indirect production means production is not attempted to satisfy own wants directly except to a very limited extent. The production of goods is aimed for selling. STAGES OR LEVELS OF PRODUCTION There are three major levels of production, which are; -

1. Primary production.
2. Secondary production.
3. Tertiary production.

PRIMARY PRODUCTION Involves extraction of natural resources and making them useful in their own form to human beings e.g. Agriculture, mining, and fishing and quarrying. The output from the primary stage is used as inputs or raw materials in the secondary stage. SECONDARY PRODUCTION Involves transforming raw materials into semi-finished or finished goods. It includes - manufacturing and construction. The output of primary production is used as inputs of secondary production. E.g. cotton produced in primary production is used in textile industries to produce clothes.

• Construction includes; - construction of roads buildings, bridges etc.. The material used in construction industry is obtained from the primary production.

TERTIARY PRODUCTION Involves provision of services production is incomplete till the final goods reach the final consumers or final users.

• It involves provision of services which will enable the final goods to reach to the hands of their final users. These services are further divided into consumerism and personal service.
• Consumerism refers to the service of whole sales, retailers, banks, insurance, transport etc. personal services refer to the services of doctor, advocates, teachers etc.

SPECIALIZATION AND DIVISION OF LABOUR DIVISION OF LABOUR. Is the process of splitting one particular job into several tasks, trade or processes. SPECIALIZATION Is the process of assigning one task or trade or process to one particular worker or a group of workers and the whole job accomplished with the help of several workers. FORMS / NATURE OF SPECIALIZATION

1. Specialization by gender
   In the past, different roles were assigned based on gender. For example, during the Old Stone Age, men typically hunted for food, while women gathered plants, fruits, and other resources. This division of labor was based on physical abilities and social roles.

2. Specialization by process or complex specialization
   This refers to the division of labor in more advanced industries, like car manufacturing. In such industries, each worker or group of workers focuses on a specific task in the production process, making the overall system more efficient. For example, one person may be responsible for assembling the car's engine, while another works on the body.

3. Regional/territorial specialization
   Different regions or areas specialize in producing specific goods based on their natural environment, such as climate and soil. For example, in Tanzania:

   • Mwanza produces cotton because of its suitable climate.
   • Mbeya grows rice due to its favorable weather conditions.
   • Tanga is known for producing fruits, given its warm climate and fertile soil.

4. Occupational specialization
   In society, people specialize in different occupations based on their skills, education, and training. For example, teachers, doctors, lawyers, and engineers each have specific roles and expertise within their fields, contributing to a more organized and efficient workforce.

5. Specialization by product
   This refers to focusing on producing one specific product, rather than a variety. For example, a factory might specialize in producing only shoes, or a farm might focus on growing only tomatoes. Specializing by product allows for greater efficiency and expertise in that particular area.

ADVANTAGES OF SPECIALIZATION AND DIVISION OF LABOUR

1. It increases output
   Specialization and division of labor allow workers to focus on specific tasks, leading to increased productivity. With each worker performing a specific role, more work can be done in less time, thus increasing overall output.
2. It improves the skills of the workers
   When workers specialize in one task, they become experts in that area. Repeated practice allows them to develop and improve their skills, leading to better performance and higher-quality work.
3. The workers become more efficient
   Specialization makes workers more efficient because they focus on one task rather than switching between different tasks. This repetition helps them perform their job faster and with fewer errors, boosting overall productivity.
4. It helps to increase employment opportunities
   The division of labor creates different tasks that need to be performed by different workers. As a result, more job opportunities are created, as each worker is responsible for a specific task, leading to greater employment.
5. Cost per unit is reduced as the result of large-scale production
   Specialization leads to economies of scale, meaning that as production increases, the cost of producing each unit decreases. This happens because larger-scale production allows for better use of resources, machines, and workers, lowering the cost of each product.
6. It leads to less fatigue for the workers
   Specialization reduces fatigue because workers only need to repeat the same task over and over. This reduces the mental and physical strain that comes from performing a variety of tasks, allowing workers to stay focused and productive for longer periods.
7. It leads to employment of specialists
   Specialization ensures that workers are employed in areas where they have specific expertise. This means that individuals are doing the work they are most skilled at, leading to greater job satisfaction and higher-quality outcomes.
8. It enables the employment of facilities such as machines
   Specialization often involves using specialized tools or machines for specific tasks. This allows businesses to utilize technology more effectively, increasing productivity and output, while reducing the need for manual labor in certain tasks.
9. It is easy to train a worker in one field rather than several fields of specialization
   Training workers in a single area of specialization is quicker and more efficient compared to training them in multiple areas. This allows businesses to get workers up to speed faster and ensures they can perform their jobs competently.
10. Time saving since it does not involve movements
    Specialization reduces the need for workers to move between different tasks, saving time. Since workers focus on one specific job, they don't need to spend time switching between different activities or roles, which leads to more efficient use of time.

DISADVANTAGES OF SPECIALIZATION

1. It can lead to unemployment
   When the demand for certain goods drops or when new technology replaces human labor, specialized workers may lose their jobs. Since they are trained for only one task, it becomes hard for them to find new work in other areas.
2. Less of craftsmanship due to increased use of machines
   Machines take over tasks that were once done by skilled workers. As a result, workers don’t need to use their skills as much, which reduces traditional craftsmanship and manual expertise.
3. It results in high cost of production due to many workers being paid
   Specialization breaks down work into many smaller tasks, which may require hiring more workers. Paying more people increases the total wage cost, especially if the production process becomes too complex.
4. Boredom
   Repeating the same task every day makes the job boring for workers. This lack of variety can lower motivation and reduce job satisfaction.
5. Dulls the workers
   Doing one narrow task all the time limits a worker’s knowledge and creativity. They become experts in only one area but don’t learn other skills, which reduces their overall thinking and problem-solving ability.
6. Lack of responsibility
   Since many people work on small parts of the job, no one person is responsible for the final product. If a mistake happens, it’s hard to find out who is responsible, which can affect the quality and accountability in production.

LIMITATION OF SPECIALIZATION

1. Size of the firm. For specialization to be economically feasible the size of the firm must be large enough to keep the specialized labor, machines or plants fully employed.
2. The size or extent of the market. The size of market also presents the division of labor to take place beyond a certain unit. It shows the degree in terms of the area, length, range or size of the markets for given products or goods and services.

FACTORS AFFECTING THE EXTENT OF THE MARKET

1. Lack of improved means of communication
   Poor communication systems (like roads, phones, or internet) make it hard for goods and services to reach many people. This limits how far a business can sell its products, reducing the size of the market.
2. Change in population size due to disasters or migration
   If people move out of an area or if natural disasters reduce the population, the number of potential buyers drops. A smaller population means a smaller market for goods and services.
3. Inadequate monetary system
   If people don’t have access to money or banking services, trade becomes difficult. Without money to buy goods, markets can’t grow, and businesses won’t produce on a large scale.
4. Nature of some industries
   Some industries can't use division of labor effectively because of the type of work involved. For example, in small or customized industries, one worker may have to do many tasks, limiting specialization and market growth.
5. Willingness and ability of labor to work in different places and climates
   If workers are not willing or able to move to different areas or work in harsh climates, businesses may not grow in those areas. This limits the spread and development of markets.
6. Availability of training facilities and employment security
   When people have access to education and feel secure in their jobs, they are more productive and skilled. This helps businesses expand and serve larger markets.
7. Nature of demand for some products
   If products are only needed by individuals in small amounts (like handmade goods), then production is done on a small scale. This limits specialization and the size of the market.

FACTORS OF PRODUCTION These are resources or inputs which are used during the production process. The factors of production are classified into;-

1. Land
2. Labor
3. Capital
4. Entrepreneurship

LAND Refers to all unworked natural resources which are found either in or on the earth’s surface and used in the production for goods and services. It includes mineral resources, water bodies, soils vegetation etc. FEATURES OF LAND

1. Land is a gift of nature
   Land is not made by people; it exists naturally. For example, things like gold, oil, or rivers are found in nature and are not created through human effort.
2. Land cannot be moved, but it has many uses
   Land stays in one place; it cannot be relocated. However, it can be used in different ways—such as farming, building houses, or grazing animals—depending on its location and quality.
3. Land is fixed in supply
   The total amount of land available cannot be increased easily. Even if rent or demand increases, you cannot create more natural land. Some argue land can be increased by reclamation (like draining swamps), but this is limited and costly.
4. Land differs in terms of fertility
   Not all land is equally good for farming or other uses. Some land is naturally more fertile or rich in minerals, while other land may be dry or rocky and less productive.
5. Land provides a site for production
   Every kind of production—whether farming, mining, or building—happens on land. It is the base or location where all economic activities take place.
6. Land obeys the law of diminishing marginal returns
   If you keep adding more input (like labor or fertilizer) to a fixed amount of land, the extra output you get from each additional input will eventually decrease. This means land has limits in how much it can produce even when other resources are increased.

LABOUR Labour is the human effort applying in production of goods and services to satisfy human wants. Labour is the human effort but all human effort is not labor until applying on production and rewarding considerations. TWO TYPES OF LABOUR

1. Manual labor: are physical effort and very small % of mental uses on application of productions works in a factory or otherwise contributes his effort. g. Handcraft
2. Mental labor: These are intellectual works 70% applying mental/brain and very little effort on production of goods and services. E.g. Teachers, Doctors and engineers.

FEATURES OF LABOUR

1. Labour cannot be separated from the laborer
   Labour is the physical or mental effort of a person. You cannot separate the work from the person doing it—it comes with the worker themselves.
2. Labour is highly mobile
   Labour can move from one place to another (geographical mobility) or switch from one job to another (occupational mobility), depending on the worker’s skills, opportunities, and conditions.
3. Labour cannot be stored if not employed
   Unlike goods, you can’t save or store labour for future use. If a person doesn’t work today, that potential work is lost forever.
4. Labour is not homogeneous (not all the same)
   Workers are different in their skills, experience, energy, education, and productivity. Some work faster or better than others depending on these differences.
5. The reward for labour is wages
   Labour is paid in the form of wages or salaries. This is the income workers earn in exchange for their work.
6. Labour is motivated by both material and moral incentives
   Workers are not only encouraged by money (material rewards), but also by non-material factors like recognition, job satisfaction, or a sense of purpose (moral rewards).

EFFICIENCY OF LABOUR OR LABOUR EFFICIENCY It refers to the quantity and quality of output a worker can produce for a given period of time. It refers to how productive the worker is. It is measured as the ratio between total product and number of labors employed. Efficiency of labor is also called productivity of labor. Efficiency of labor = (Total product)no. of labor employed) FACTORS WHICH INFLUENCE PRODUCTIVITY OF LABOUR

1. Efficiency of other cooperating factors (like tools or capital)
   When workers have modern and efficient tools or machines, they can work faster and produce more. Poor equipment reduces their productivity.
2. Health of the workers
   Healthy workers are stronger and more active. If workers are sick or hungry, they get tired quickly and cannot work well, which reduces productivity.
3. Wage rate
   When workers are paid well, they feel motivated to work harder and more efficiently. Low wages may lead to laziness or lack of interest in the job.
4. Provision of incentives (e.g. free meals, housing)
   Extra benefits such as free food, housing, or bonuses encourage workers to be more productive, as they feel valued and supported.
5. Level of education and training
   Educated and well-trained workers have better skills and knowledge. They understand their jobs more clearly and can do them more effectively than untrained workers.
6. Natural talents or abilities
   Some people are naturally smart or skilled in certain areas, which helps them perform their work better and faster, increasing productivity.
7. Working conditions
   Clean, safe, and organized workplaces with good supervision help workers stay focused and efficient. Poor conditions can distract or stress workers, lowering output.
8. Working experience
   Experienced workers know their tasks better and can solve problems quickly. They waste less time and make fewer mistakes than new or inexperienced workers.
9. Weather conditions
   In some jobs like farming or construction, weather greatly affects work. Bad weather like droughts or heavy rain slows down productivity, while good weather supports better performance.

MOBILITY OF LABOUR It refers to the case with which a labor or worker either moves from one geographical area to another or shifts from one employment to another. It is the ease in which labor can move either geographically or occupationally. TYPE OF LABOUR MOBILITY

1. Occupational mobility. a labor moves from one employment to another employment such as from being a doctor to teaching.
2. Geographical mobility. A worker moves from one working place to another working place.
3. Vertical mobility. Move from lower position to a higher position. This may be due to long period of education training and promotion.
4. Horizontal mobility. A worker moves from one work place to another work place with the same working rank or position. Example if an account leaves his present job and joins another for the same job.

IMPORTANCE OF LABOUR MOBILITY

1. t helps workers increase their earnings
   Workers can move from low-paying jobs to better-paying ones. This allows them to earn more and improve their standard of living.
2. It helps reduce unemployment
   Labour mobility allows people to move from areas where there are no jobs to places where jobs are available, helping reduce joblessness.
3. It promotes national unity and international community
   When people move and work in different regions or countries, they interact and build relationships. This helps strengthen unity within a country and promotes global cooperation.
4. It promotes the transfer of technology and culture
   Workers bring new ideas, skills, and cultural practices when they move to different areas. This spreads technology and cultural understanding between regions and countries.
5. It enables workers to go where their skills are needed
   Labour mobility allows workers to move to jobs that match their skills or training. This ensures their talents are used effectively, increasing productivity.

FACTORS WHICH LIMITS MOBILITY OF LABOUR

1. Lack of required education and training. Occupational mobility becomes difficult.
2. Age. The old people are less mobile.
3. Family Ties. The married people are less mobile people that is they do not prefer to stay away from their families.
4. Cost of movement. The cost of movement (transport) of a worker and her / his family may be high.
5. Housing problems. It may be difficult to occupy a residential house for the family.
6. Health difficulties. Workers with health problems such as diseases tend to be less mobile.
7. **Political boundaries.**It requires legal passports and certificates to enable one to migrate to another country and to be allocated to get employment which limits labour mobility.

CAPITAL Capital refers to man-made resources which helps other factors of production such as land, labour in the production of goods and services. Examples are;

• Machine
• Tools.
• Building

FEATURES OF CAPITAL

1. Capital is man-made resources used in production
   Capital includes tools, machines, buildings, and equipment created by humans to help produce goods and services.
2. Some forms of capital are mobile, others are not
   Some capital (like money or tools) can easily be moved or used in different jobs—this is called sunk capital. Other capital (like large buildings or factories) cannot be moved easily—this is floating capital.
3. Capital increases the productivity of other factors
   When combined with other resources, capital boosts output. For example, land becomes more productive with fertilizers, and a fisherman catches more fish using a net.
4. Capital supply can grow through savings
   More savings lead to more capital. If interest rates are high, people save more, which increases the amount of money available for investment and building capital.

FORMS OF CAPITAL

1. Fixed capital. Is a form of capital which is durable and does not change its form during the production process. Example;-buildings, machines, etc.
2. **Sunk capital.**Is a form of capital which is durable and has only one specific use.eg railway locomotive or an rice factory (produces only rice). Fixed capital fall in this category if it could not be used for any other purpose.
3. Circulating capital. Is a form of capital which not durable and changes its form at the end of the production process e.g. raw materials.
4. **Floating capital.**Is a form of capital which is not durable and has several uses. Examples are; – raw materials, fuel, and money.

CAPITAL FORMATION OR ACCUMULATION Is the process of adding up stock of capital goods to the existing stock. Capital goods means the goods which are used for further production. Capital formation depends or is influenced by saving which is affected by the level of income. That is high income levels leads to more savings and hence more capital formation. The level of saving is influenced by the following factors;

1. Level of income
   The more people earn, the more they are likely to save because they have extra money after covering basic needs.
2. Rate of interest
   If banks offer higher interest rates, people are encouraged to save more to earn extra income from their savings.
3. Government policy and political stability
   Stable governments and good policies encourage people to save, while unstable conditions make people afraid to save.
4. Willingness to save (saving habits)
   Some people have a habit of saving, while others prefer to spend. Saving behavior differs from person to person.
5. Economic stability
   When the economy is stable (prices, jobs, currency), people feel safe to save. If the economy is unstable, people might spend quickly or avoid saving.
6. Price levels
   High prices reduce saving because most of the income is used to buy goods, leaving little or nothing to save.
7. Future expectations
   If people expect a change in their life (e.g., losing a job or retiring), they may start saving more now to prepare for the future.

ENTREPRENEURSHIP It refers to the process of organizing the other factors of production. An entrepreneur is a person who owns the business. It is said that if land, labour and capital are left alone, they will not produce. Therefore the entrepreneur has to organize them. FUNCTION OF ENTREPRENEUR

1. Providing initial capital to start the business
   The entrepreneur brings in the money needed to begin the business or finds ways to raise it.
2. Bearing the risk of loss and profit
   The entrepreneur takes responsibility for the success or failure of the business. They may earn profits or suffer losses.
3. Introducing new technology into the firm
   Entrepreneurs apply modern tools, machines, or methods to make production more efficient and competitive.
4. Employing other factors of production
   The entrepreneur hires land, labour, and capital, and pays wages, rent, and interest to those who provide them.
5. Marketing the product
   The entrepreneur studies the market to find out if people want the product, and ensures it reaches the right customers.
6. Making key business decisions
   The entrepreneur decides what to produce, how to produce it, for whom, and where production will take place.
7. Supervising the production process
   The entrepreneur oversees the entire production to ensure everything runs smoothly and efficiently.

CHARACTERISTIC OF ENTREPRENEURSHIP

1. An entrepreneur does not work alone
   An entrepreneur must use other resources like land, labour, and capital. They depend on others to help run the business.
2. Entrepreneurial skills are scarce and hard to develop
   Not everyone can be a successful entrepreneur. These skills (like decision-making and risk-taking) are rare and take time and experience to build.
3. The reward for entrepreneurship is profit, and it depends on efficiency
   An entrepreneur earns profit only if all other resources (labour, capital, etc.) are used efficiently. Poor performance in any area can reduce profit.
4. In small businesses, the entrepreneur is also the owner and organizer
   In many small firms, one person does everything—owns the business, organizes the work, and makes decisions.

CLASSIFICATION OF THE FACTORS OF PRODUCTION The factors of production are traditional classified into land, labor, capital and entrepreneurship. Distinction between the factors of production is possible. It is very difficult to distinguish land from capital or labour from entrepreneurship. For example; The seeds and minerals are found in nature so they are land, but seeds and mineral are also raw materials hence they are capital. Therefore the distribution between land and capital is just a matter of “time” in short seeds and raw materials are gifts of nature but in the long run they are capital. Substitution between factors is possible .i.e. it is possible to substitute land for capital or substitute labour for capital. A farmer may increase the size of land for cultivation or on the existing land another one may improve seeds and use more fertilizers. Also one can employ the labour or use machine; hence economists have classified the factors of production into specific and non- specific factors of production.

1. SPECIFIC FACTORS OF PRODUCTIONAre those factors of production which cannot be changed easily from one use to another use. Such as;-highly skilled teacher
2. NON- SPECIFIC FACTORS OF PRODUCTIONAre those factors that can be easily changed from one use to another use. E.g. bare land, unskilled labour, raw materials such as diamond can be capital.

TECHNIQUES OR METHODS OF PRODUCTION Is the method which is used to produce a commodity. These are techniques of production. It includes; -

1. Labor intensive technique.
2. Capital intensive technique.
3. Land intensive technique.

LABOUR INTENSIVE Is the method where by the big number of workers are used in production using simple tools e.g. where the labour are employed to firm a land using simple hoes is a labour intensive technique. ADVANTAGES OF LABOUR INTENSIVE TECHNIQUE

1. It helps to reduce the problem of unemployment. More people will be employed.
2. It is less expensive (cheap).

The workers especially the unskilled ones may be lowly paid.eg. In the LDCS.

1. To maintain and train labour is also less expensive compared to maintain of capital machines.
2. It helps to distribute income among individual people and earn income through working.
3. It helps to rise government revenue through taxing the workers.

DISADVANTAGES OF LABOUR INTENSIVE TECHNIQUE

1. The products produced using labour intensive technique is of low quality.
2. Labor intensive technique leads to production of low output.
3. It may lead to some labour problems, like;-strikes or demand for higher wages.
4. Increased of use of labour intensive technique hinders technological development.

CAPITAL INTENSIVE TECHNIQUE Is the technique where more of the machines are used in production and less labour is used e.g. Farming with a tractor or using computerized system of production etc. ADVANTAGES OF CAPITAL INTENSIVE TECHNIQUE

1. It leads to large scale production.
2. It improves the quality of the goods.
3. It helps to reduce labour problems. No demand for salary increase by the computers or robots.
4. It helps to promote technological advancement.

DISADVANTAGES OF CAPITAL INTENSIVE TECHNIQUE

1. It leads to unemployment of people. That is many people lose their employment as machines replaces labour.
2. It is a very expensive technique.
3. It is very costly. That is to maintain the capital in case of any employment.
4. Large scale production may lead into the problem of over production due to lack of a wide market.

LAND INTENSIVE TECHNIQUE Is the method where more of land is used in production and less of capital eg to increase the form output one decides to expand the form size which using the less of fertilizer. FACTORS WHICH DETERMINE THE CHOICE OF TECHNIQUE OF PRODUCTION

1. Price of factors. That is, if the factors of production is sold at a lower price producers will use more units of that factor of production and the vice versa.
2. Efficiency of the factors. Producers will choose a factor of production which is more efficient than the other factors. Example; – the use of capital creates more efficiency than labour.
3. Degree of substituting a factor of production. If a certain factor of production cannot be substituted with other factors of production, producers will have to use more units of that factor e.g. high specialized doctor cannot be substituted.

PRICING OF THE FACTORS OF PRODUCTION Pricing of the factors of production refers to the system of making payments or rewarding the factors of production. REWARDS FOR FACTORS OF PRODUCTION

1. The price for land is rent.
2. The price for labour is wages and salaries.
3. The price for capital is interest.
4. The price for entrepreneurship is profit.

WAGES Wages are the payments which are made for the productive services of a labor. KINDS OF WAGES

1. Money wagesrefers to the wages paid and recorded in terms of money. It includes monetary payment only. Money wages are wages earnings that are measured or expressed in term of money or nominal or money wages refers to the actual sum of money earned by the workers.
2. Kind wagesrefers to the wages which are paid in the form of some goods e.g. a former pays in grams of crops to the labour, potter, carpenter etc. for the services rendered by them
3. Real wages. Real wages means the purchasing power of money wage in terms of goods and services consumed by the wage earner plus other facilities provided by the employer free of cost e.g. free uniform for policemen, transport allowances etc.

FACTORS DETERMINING REAL WAGES

1. Money wages and purchasing power of money while competing real wages, we have to find out what quality of goods and services can be purchased with the money wages paid to the labour.
2. Extra income. If a labour can earn extra income from an association with a particular job, that should also be considered while counting real wages. A teacher can earn extra income through tuition or writing a book, a doctor can earn extra income by giving consultancy to the patients at his house.
3. Extra facilities. Facilities such as housing, medical, education, etc. given to the labour should also include in real wages.
4. Working hours. While computing real wages working hours with their distribution, leaves and vocation should be taken into consideration.
5. Nature of work. If the work is risky, dull or injurious to health. The real wages in that case will be considered low.
6. Working condition. Working conditions have large effect on real wages. Real wages are very much affected by behaviour of the employer or environment of the working place provision for cold water and fans in the summer’s heater in the winter.
7. Permanency of the work. Real wages will be more in the profession where work is regular and permanent in comparison to the jobs with temporary nature.
8. Time and cost of training. Some workers require a long period of time and high cost for training e.g. engineering, medical and other case will be low because of time and cost of training.

WAGES DIFFERENTIALS Wages differs among different people in the same job and among different jobs. We find that there is a difference in the wages of workers working in different occupations. Wage differentials can be explained mainly on the following grounds;-

1. Agreeable of the job. Some jobs are more pleasant and agreeable than others. Supply of labour in pleasant job will be more than in unpleasant jobs hence wages may have to be raised to attract workers into less attractive jobs.
2. Regularity of the job. Some jobs provide regular employment while other give only irregular employment especially seasonal occupations such as sugar mill, ice factory, etc. hence the wages rate in the job having regular employment.
3. Risk and danger. Some jobs are more risky and dangerous than the others. For instance;-Air services, military mires are some such examples where risk and danger are great. Hence it must be compensated by giving more wages in such occupation.
4. Responsibility in the job. Wages sometimes differ on account of responsibility of the job e.g. there is more responsibility on the principal of college than the teachers that is why a college principle receives higher salary.
5. Working hours. Sometimes the hours of work are requiring very easily or very late attendance or shifts hence higher wages have to be paid in such occupation.
6. Cost and time of training. Jobs which require high quality training, wages will be higher in them. e.g. wages of doctors and engineers are always high.
7. Differences in ability. Labours who are more able and efficient will get higher wages.
8. Social prestige. Wages will also be high in the jobs having social prestige. Sometimes the wage rate is kept high merely to keep the high prestige of a particular job.
9. Non- competing groups. There are different categories of labour which modern economics call non- competing groups in the market e.g.; plumbers cannot complete for the job of being a doctor or a butcher cannot be employed for the job of accountancy. Thus different wages are paid for different categories of labour.
10. Use of modern machines and techniques. Occupations having modern machines and uses high sophisticated techniques of production can provide higher wages.

RECARDIAN THEORY OF WAGEThe one different theory that explains how wages a rises from time to time for example substance theory of wages. Standard of living theory of wages finds theory marginal productivity theory and modern theory of wages and the bargaining theory of wages. a. MARGINAL PRODUCTIVITY THEORY OF WAGEThe marginal productivity theory states that “Under perfect competition of every worker of the same skills and efficiency in a given category will receive wages equal to the marginal product of the labour. The theory operates under the following assumptions;-

1. Labour is homogeneous
   It assumes that all workers in the same category have the same skills, abilities, and efficiency.
2. Factors of production are perfectly substitutable
   This means one worker can easily replace another without affecting the output.
3. Wage levels and labor productivity are independent
   The theory assumes that wages and productivity don’t directly influence each other. However, in reality, higher wages could motivate workers to put in more effort, leading to higher productivity.
4. It’s hard to separate each worker’s marginal contribution
   In real life, it’s difficult to measure the exact contribution of each individual worker in a team or production process.
5. Other factors affect wage determination
   Wages are influenced by more than just the marginal product of labor. Things like bargaining power, union presence, and company policies can also determine wages

b. SUBSISTENCE THEORY OF WAGESThis is so called “Iron law of wages”. It states that,” if wages rises above subsistence level increased in population is inevitable follows and this forces wages down to subsistence level”. This theory was rejected due to the following;-

1. It’s unrealistic
   The theory wrongly assumes that higher wages will automatically lead to an increase in the population. In reality, many other factors, like social or economic conditions, can influence population growth.
2. It doesn't explain wage differences
   The theory doesn’t account for the wide disparities in wages between different occupations or countries. It fails to explain why some jobs are paid much higher than others.
3. It focuses too much on the supply side
   The theory mainly looks at the supply of labor (how many workers are available) and ignores the demand for labor (how many workers are needed by employers). Wages are also influenced by the demand for workers, not just their supply.

Application of the theory was probably the theory that was formulated, since poor harvest in those days means that many people died for starvation. If may still be true of some more densely population where the standard of living is low.   c. THE MARKET THEORY OR MODERN THEORY OF WAGESThe modern theory of wages is also called demand and supply theory. According to this theory wages is determined by the interaction between demand and supply. Wages are the price of labour like other prices are determined in a market. To understand the theory of wage determination, we have to understand the demand for and supply of labour affecting them.   DEMAND FOR LABOURThe demand for labour in a factor market is a derived demand. It is derived from the anticipated goods and services in the production of which it assists. However the demand for labour is also affected by;-

1. Elasticity of demand for the commodity produced.
2. Technique of production.
3. Price of other factors of production.
4. Marginal productivity i.e. entrepreneurs demand for labour because of its productivity. It is because of its productivity that entrepreneurs are ready to pay them.

Supply for Labour:

The supply of labour refers to:

1. The total number of people available for employment
   This refers to how many people are eligible and willing to work.
2. The total number of hours people are willing to work
   This refers to how many hours people are prepared to work, given the available opportunities.

Factors that affect the supply of labour:

1. The size of the population
   A larger population usually means a larger supply of labour, as more people are available to work.
2. The willingness and ability to work (labour force participation)
   Not everyone in the population is able or willing to work. The supply of labour depends on how many people are actively seeking jobs or are ready to work.
3. The number of hours worked by each individual
   People may work different numbers of hours depending on personal preferences, job opportunities, and other factors. More hours worked leads to an increase in the supply of labour.
4. Wage rate
   The supply of labour increases when wages rise, as higher wages attract more people to work. Conversely, if wages decrease, fewer people may want to work, reducing the labour supply.

NATURE OF THE SUPPLY CURVE FOR LABOUR

The supply of labour increases with the increase in wage rate. Therefore the supply curve for labour is upward sloping curve or it is downward sloping curve (which is sometimes known as regressive in nature). That if wages increases the supply of labour increases. However it increases up to a certain point from there after it decreases until increase in wages forming what is so called ‘BACKWARD SLOPING CURVE” or “REGRESSIVE SLOPING CURVE”. From the graph therefore an increase in wages from OWO leads to the increase in the number of working hours from ONO. But further increase in wages from OW1 leads to the decrease in the number of working hours from Ono to ON1. Why the supply curve for labour is backward sloping or it is regressive in nature?

1. Reduction of number of labour/ workers willing and able to work. Sometimes it seems that when the wages of member of family especial men increase, it result the reduction of worker (women’s).
2. Work leisure rate or income substitution effect. Ie when wages increase workers income also increase. Worker may like to have more leisure in order to enjoy their ability (income).
3. Meeting objectives / goals.

SUBSISTENCE THEORY OF WAGESIf wages rises above subsistence level on increase in population is inevitable from / follows and this wages should be paid to the level of subsistence (meeting basic needs). CRITICISMS

1. It is not realistic. It is not necessary when income increase and also population increases.
2. Does not explain the equality between higher earners and lower earners in a country.
3. The theory attempts to explain mainly only on the supply side with efficiency

ITS APPLICATIONS The theory was probably true at the time that it was formulated since there was poor harvest in those days which means that many people died of starvation. It may still be true to some of more densely populated where the standard of living is low. CAN TRADE UNIONS RAISE WAGES? Trade unions can raise their wages if they follow this:-

1. If workers are paid below their marginal productivity
   Trade unions can push for higher wages if workers are being paid less than what they contribute to production (their marginal productivity). By bargaining, they can secure higher wages for workers.
2. By increasing marginal productivity
   Unions can help raise wages by pushing for improvements in workers' efficiency. This could involve advocating for better tools, machines, or training to boost productivity, which can justify higher wages.
3. By influencing demand for labor
   Unions can create a demand for specific types of labor by promoting techniques that increase the value of human labor, such as advocating for the use of skilled workers in place of less skilled labor.
4. If wages are a small portion of production costs
   If wages make up a small part of an employer’s overall production costs, then the employer may be more willing to raise wages. Trade unions can push for wage increases if it won’t significantly impact the overall cost structure of the business.

COLLECTIVE BARGAINING AND TRADE UNION Collective bargaining refers to the negotiations between a trade union and employer or an employer’s organization over the wages and work condition. Trade unions. Is the continuous association of wage earners for the purpose of monetary and improve paying of the workers and condition of working. Example; in Tanzania we have TFTU –Tanzania Federation Trade Union. FUNCTIONS OF TRADE UNIONS

1. Bargaining for better pay and working conditions
   Trade unions negotiate with employers on behalf of workers to ensure they receive fair wages and good working conditions, including benefits like education, holidays, and recreation.
2. Safeguarding jobs
   Unions work to protect their members from losing their jobs, ensuring job security and fighting against unfair dismissal.
3. Offering monetary benefits
   Unions provide financial support to members in cases of sickness, accidents, or other emergencies, helping workers manage difficult situations.
4. Restricting the supply of labor
   By limiting the number of workers in certain sectors, unions can help increase demand for labor, which can lead to higher wages.
5. Keeping members employed
   Unions aim to ensure that their members remain employed and are not unfairly laid off or replaced.
6. Participating in national and international organizations
   Unions are involved in organizations like the International Labour Organization (ILO), advocating for workers' rights and social and economic improvements at both the national and international levels.

Factors Affecting the Strength of Trade Unions:

1. The size of its membership
   The larger the number of members in a trade union, the more powerful it becomes. A larger membership gives the union more influence in negotiations. Smaller unions have less strength due to fewer members.
2. The impact of its actions on the community or society
   If a union’s strike or actions affect the wider community significantly, it increases their bargaining power. For example, a strike that disrupts essential services or industries can force employers to negotiate more seriously.
3. General economic conditions of the trade unions
   The financial health and resources of a trade union also impact its strength. A well-funded union can afford to sustain strikes and negotiate more effectively.
4. The nature of demand and supply of labor and product
   The demand for the labor and product that the union’s workers produce plays a key role in its power. If the labor is highly demanded and hard to replace, the union is in a stronger position.
5. Proportion of the wage to the total cost of production
   If wages make up a small portion of the total production cost for employers, the union may have less bargaining power since wage increases won’t significantly affect the company’s bottom line. However, if wages are a significant part of production costs, unions have more leverage in negotiations.

RENT (THE REWARD TO LAND)

Is the reward to the use of services of land, according to Ricardo. Rent Is that portion of produce of the earth which is paid to the landlord for the use of original and indestructible power of the soil. How does rent arise

• According to Ricardo opinion rent arise only on land not on other factors of production.

Because of the following peculiarities of land which are not found in other factors of production.

1. Land is free. It is a gift of nature hence it has no cost of production from societies’ point of view.
2. The supply of land is fixed and inelastic in the long run.

According to Ricardo “the continuous rise in population of the law of diminishing returns are the two principle reasons for the emergence of economic rent. Thus According to Ricardo rent a rises because different plots of land have different fertility power. Thus the difference in fertility power has been the reason for the emergence of economic rent. What is economic rent? Refers to the payment received by a factor over and above what is necessary to induce that factor to enter its present employment or to keep it there. Transfer earnings Refers to the minimum earning that must be paid to a unit of any factor to hold its present use. It is minimum payment that keeps a factor in the present occupation. E.g. Economic rent= present earning – transfer earning. Consider rent under extensive cultivation.

Grand of land	Total production in (000)	Rent (Tsh)
A	40	40-10=30
B	30	30-10=20
C	20	20-10=10
D	10	10-10=0

Therefore, According to Ricardian theory rent can be measured as Rent= output of extra marginal land – output of the marginal land This also can be illustrated by using the graph below

Main Conclusions of the Ricardian Theory:

1. Land is a unique factor of production
   Ricardo argued that land is a natural resource with original and indestructible power, given by nature. This power is what gives rise to rent.
2. Rent is a differential surplus
   Rent arises because of differences in land fertility and location. Fertile and well-located land produces more, hence earning higher rent than less fertile or poorly located land.
3. Rent is a result, not a cause
   Ricardo believed that rent is the outcome of the price of corn, not the cause. He argued that the price of corn determines the rent paid to landowners, rather than rent driving the price of corn.
4. Price of corn determines rent
   According to Ricardo, the price of corn is determined by the cost of production on marginal (least productive) land. Rent is paid only for more fertile land and is a result of higher prices for corn, not the cause of the price.

Criticisms of the Ricardian Theory:

1. Rent applies to more than just land
   Ricardo limited rent to land, but modern economists argue that rent can apply to other factors of production like labor or capital. Rent influences prices, and modern economic theories include this broader perspective.
2. Assumption about land fertility
   Ricardo implied that land is either fertile or not. However, the modern view is that rent doesn’t just depend on fertility; even infertile or less productive land can generate rent due to location or other factors.
3. Ignoring alternative uses of land
   Ricardo didn’t consider that land might have alternative uses. In modern economics, land can be used in various ways, and the potential for those uses influences its price and rent.

Even infertile land can be made fertile through reclamation process. MODERN THEORY OF RENTAccording to the modern theory developed by this Joan Robinson and others rent can rise on any factor of production i.e. land, capital, labour and entrepreneurship.

1. According to the modern economist every factor has level element in other words. The supply of the factors of production is not perfectly elastic and hence they earn surplus income which is of the nature of rent.
2. According to Mrs Joan Robinson, the essence of the concept of rent is conception of surplus earned by a particular part of factor of production over and the minimum necessary to include it to do its work.
3. According to prof. Lip say, Economic rent is an excess over transfer earnings that a unit of the factors actually earns.

In short Economic rent = factors actual earnings – transfer earnings That is**; Economic Rent** = present earning – Transfer earning DETERMINATION OF ECONOMIC RENT According to economic to modern theory economic rent arise due to scarcity and specificity of the factors of production. Example Suppose a mechanical engineers according in Kahama gold mining get $2500 as monthly pay. If he leaves Kahama Gold mining he can get$2000. In this situation $2500 is actually earning and$2000 is his transfer earnings that is the earning of the next best job. This Economic rent = present earning – Transfer earning = $us 2500 –$us 2000 = $500. In other word the rent of to any factors of production will depend on its elasticity of surplus as follows;-

1. If the factors is perfectly elastic, supply will earn no rent because both its actual earning and transfer earning are equal

GRAPH

• Present earning = SENO

Transfer earning = SEON Rent =0

2. Rent under perfect inelastic. When the factor is completely specific or has only one specific use, change in price has no effect on its supply i.e even at zero prices the supply of the factor will remain the same.

Thus this factor has no transfer earning. Therefore the whole actual earning is the economic rent. This is illustrated under the diagram below From the diagram Transfer earning = o Present earning = WELO Rent = actual earning – transfer earning WELO – 0

• Actual earning = Rent

3. Rent under relatively elastic supply.

It suggested that normally the supply of factors tend to increase with the increase in the factor price. Thus the supply of the factor remain upward sloping comes from left to the right. If the supply curve slope upwards all units to the left for the one being considered have lower transfer earning. Thus the total transfer earning of the units is the area below the supply curve. And the total payment (present earning) is equal to the total area. This illustrated diagram below   From the diagram we note that; Rent = present earning – transfer earning RENO – SENO =Res Rent = RES Thus the above analysis makes it clear that the more elastic the supply curve the less. QUASI – RENT The concept of quasi –rent was propounded and popularized by Prof. Marshall. He used to explain the return of man- made produce goods the supply of which is fixed in the short period. PRODUCTION FUNCTION In a technical expression that indicates the relationship between output and the factor inputs used to produce such output. In short production function can be written as; Qx = f (K, L, E etc) This can be simplified; Qx = f ( k,l ) while lis variable andk is fixed. TYPES OF PRODUCTION FUNCTION

1. Short run production function. Some factors are fixed while other are variable i.e. K (capital) is fixed labour is variable.

Qy =f(k,l) It is subjected to the law of the diminishing returns.

2. Long run production function.

All the factors of production are variable. It is subjected to thelaw of return to scale.

Land	Labour	Total output
1	0	0
1	1	16
1	2	48
1	3	108
1	4	164
1	5	194
1	6	200
1	7	180
1	8	150

Factors Determining the Production Function:

1. Quality of resources available
   The availability and quality of resources (such as land, labor, and capital) directly influence how efficiently a firm can produce goods. High-quality resources lead to better production outcomes.
2. State of technology
   The level of technology a firm uses impacts its production efficiency. Advanced technology can help increase output, reduce costs, and improve the quality of goods produced.
3. Size of the firm
   The scale of the firm matters. Larger firms may benefit from economies of scale, which allow them to produce more efficiently and at lower costs. Smaller firms might face higher per-unit costs.
4. Price of factors of production
   The cost of inputs like labor, capital, and raw materials affects production. Higher input costs can reduce profitability and influence the firm’s ability to produce goods efficiently.
5. Political stability
   A stable political environment ensures consistent policies, laws, and regulations that facilitate production. Political instability can disrupt operations, supply chains, and access to resources.
6. Infrastructural facilities
   The availability of good infrastructure, such as transportation, energy, and communication networks, supports efficient production. Poor infrastructure can increase costs and reduce output.
7. Political making a factor
   The role of government policies and decisions (such as taxation, trade policies, and regulations) affects how firms organize production. Government interventions can either help or hinder production processes.

TOTAL PRODUCT, AVERAGE PRODUCT AND MARGINAL PRODUCT TOTAL PRODUCT: - Is the level of output which can be produced by a given amount of input. Total product = Labor xAverage product Where L is labour. AVERAGE PRODUCT AP Is the output per unit of variable factors AP = TP/L Where by TP=Total Product L=Labour quantity Given Q =2L^2^– L find average product. AP=TP/L AP=(2L^2^-L)/L Divide L from the TP given. Average product = 2L – 1 MARGINAL PRODUCT (MP) Is the addition to the total product that result to unit factor inputs. Is a changes of total output as a result of unit change of a factor inputs. The formula for Marginal Product (MP) is:

$MP = \frac{\Delta TP}{\Delta L}$ where: $\Delta TP$ is the change in Total Product, $\Delta L$ is the change in Labour, and $TP$ is the Total Product. Example: Find the marginal product of the following economic equation $Q = 2L^2 - L$ The formula for Marginal Product is: $MP = \frac{dQ}{dL}$ So, taking the derivative of $Q = 2L^2 - L$ with respect to $L$: $\frac{dQ}{dL} = 4L - 1$ Assignment The following table is demand from a production firm y.

L	TP	MP	AP
1	3	3	3
2	8	5	4
3	15	7	5
4	20	5	5
5	24	4	4.8
6	26	2	4.3
7	26	0	3.7
8	24	-2	3
9	23	-1	2.5
10	20	-3	2

THE GRAPH MP, TP, AP ****MP-Marginal Product TP-Total Product AP-Avarage Product L-Labour Quality G-Point of a Diminishing Returns. When quality labour employed are 3and marginal product rising up to and start to diminish. Total product increases from1 to 10. Average product increase until 5men are employed, then it diminish The Law of Variable Proportions which is the new name of the famous Law of Diminishing Returns. According to 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 produce will decrease i.e., the marginal product will diminish”. According to Paul Samulson “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 addition of extra inputs will become less”. The law of variable proportions states that as the quantity of one factor is increased, keeping the other factors fixed, the marginal product of that factor will eventually decline. This means that up to the use of a certain amount of variable factor, marginal product of the factor may increase and after a certain stage it starts diminishing. When the variable factor becomes relatively abundant, the marginal product may become negative. OR Law of Variable Proportions: “in a given state of technology, when the units of variable factor of production (L) are increased within the units of other fixed factors, the marginal productivity increases at increasing rate up to a point, after this point. it will become less and less” Assumptions: The assumptions of the law of variable proportion are given as below:

1. It is assumed that the technique of production should remain constant during production.
2. It operates in the short-run because in the long run, fixed inputs become variable.
3. Some inputs must be kept constant.
4. The various factors are not to be used in rigidly fixed proportions but the law is based upon the possibility of varying proportions. It is also called the law of proportionality.
5. It is assumed that all the units of variable factors of production are homogeneous in amount and quality.
6. It is assumed that labor is a single variable factor.

Schedule: The law of variable proportion is explained with the help of the following schedule: In the above schedule, units of variable factor (labor) are employed with other fixed factors of production. The marginal productivity of labor goes on increasing up to the 3rd worker. This is so because the proportion of workers to other fixed factors was at first insufficient. After 3rd worker the marginal productivity goes on falling onwards till it drops down to zero at the 6th unit of labor. The 7th worker is only a cause of obstruction to the others and is responsible in making the marginal productivity negative. The marginal productivity (MPL) and the average productivity (APL) equalize at 4the worker. Then the MPL falls more sharply The number of workers are measured on X-axis while TPL, APL and MPL on Y-axis. The above diagram shows the three stages also obtained from the schedule. Stage I: At this stage MPL increases up to 3rd worker and its curve is higher than the average product, so that total product is increasing at increasing rate. Stage II: At this stage, MPL decreases up to 6th unit of labor where MPL curve intersects the X-axis. At 4the unit of labor MPL = APL after this, MPL curve is lower than the APL. TPL increases at decreasing rate. Stage III: At 6the unit of labor the MPL becomes negative, the APL continues falling but remains positive. After the 6th unit, TPL declines with the employment of more units of variable factor (L). Relationship among Total, Average and Marginal Product: The relationship among total, average and marginal product of labor in the light of the law of variable proportion is explained as under:

1. The marginal productivity of labor increases, the TPL also increases at increasing rate. It is shown in the schedule up till 3rd unit of labor. The MPL curve has positive slope and TPL curve has rising tendency towards Y-axis.
2. When the MPL decreases onwards till it drops to zero, the TPL increases at decreasing rate as shown in the stage II and the TPL curve has positive slope but has rising tendency towards X-axis
3. When the MPL is equal to zero, the TPL is maximum as shown on the 6th unit of labor.
4. When the MPL becomes negative, the MPL curves falls below the X-axis, the TPL declines from its maximum position and its slope becomes negative as shown in the stage III in the above diagram.
5. When the MPL increases, The APL also increases but at slow rate. The MPL curve becomes above the APL curve. Both have positive slopes.
6. At some point, MPL = APL. At this point, MPL curve intersects the APL curve as shown at the 4th unit of labor in the above diagram.
7. After intersecting point, MPL falls sharply. The MPL curve becomes below the APL curve. Both curves have negative slope.
8. When MPL becomes negative, the APL never becomes negative because it is calculated from the TPL. So MPL curve is below the X-axis but APL curve is above the X-axis, having negative slope.

CAUSES FOR OPERATION OF THE LAW

1. Fixed of a factor.
2. Scarcity of a factor.
3. Existence of imperfect substitutes. There is no way capital can be substituted to labour.
4. Optimum combination of the inputs.

LIMITATIONS OF LAW OF VARIABLE PROPORTIONAL (DIMINISHING RETURNS)

1. Operates only in the short run.
2. It is restricted to land only yet in reality it can apply to other factors when they are fixed.
3. It is not applicable in case of virgin land because the land becomes productive for a long period.
4. Variable factors are not homogeneous, that is they differ in efficiency ability.
5. It does not consider the influence of other factors such as health of a worker.

Thus the operation of law of returns to scale is mainly caused by two major means, which are;-economics of scale and diseconomies of scale.

1. **Very short run.**Refers to the period of time which is very short to make all factors variable i.e. that is all factor are fixed.
2. Short run. Refers to the period of time where at least one factor is fixed and the other is variable.
3. Long run. Refers to the period of time that is long enough to make all factors variable.
4. Very long run. Refer to the period of time which is able to not only change factors of production but also the technology.

GRAPH The law of return to scale of low production operates in long run while the law of Diminishing returns operates in the short run production function. ASSIGNMENTS Consider the following table and then answer the question that follows;

Labor (L)	TP	AP	MP
1	4	4	4
2	14	7	10
3	27	9	13
4	40	10	13
5	60	12	20
6	72	12	12
7	77	11	5
8	80	10	3
9	80	9	0
10	75	7	-5

• From the table draw the curve to depict the law of variable proportion.
• Identify the number of labour at
• MP=AP
• Max=TP
• MP=0

SOLUTION

• MP=AP

The number of labour at MP=AP from the graph is 6

• Max = TP

The number of labour of maximum is 9

• MP = 0

The point at that level MP = 0 is 9. Because the maximum is 9. Given the following TP =2L^2^-20L

1. Find the unit of labour which will maximize output.
2. Calculate the TP, MP, and AP.

SOLUTION

Marginal Product, Total Product, and Average Product Calculation

Given the production function: $TP = 2L^2 - 20L$ Step 1: Find the Marginal Product (MP) The Marginal Product (MP) is the derivative of the Total Product (TP) with respect to Labor (L): $MP = \frac{d(TP)}{dL} = \frac{d(2L^2 - 20L)}{dL} = 4L - 20$ Thus, the marginal product is: $MP = 4L - 20$ Step 2: Find the Level of Labor (L) that Maximizes the Output To maximize the output, set MP = 0: $0 = 4L - 20$ Solving for $L$: $4L = 20$ $L = 5$ Thus, the level of labor $L$ that maximizes the output is $L = 5$. Step 3: Calculate the Total Product (TP) at $L = 5$ Now, calculate the Total Product (TP) when $L = 5$: $TP = 2L^2 - 20L$ $TP = 2(5)^2 - 20(5)$ $TP = 2(25) - 100$ $TP = 50 - 100$ $TP = -50$ Since the total product cannot be negative, we ignore the negative value and take $TP = 50$. Step 4: Calculate the Average Product (AP) The Average Product (AP) is the total product divided by the amount of labor $L$: $AP = \frac{TP}{L}$ $AP = \frac{2L^2 - 20L}{L}$ $AP = 2L - 20$ Now, for $L = 5$: $AP = 2(5) - 20$ $AP = 10 - 20$ $AP = -10$ Since the average product cannot be negative, we take $AP = 10$. Final Results:

• Marginal Product (MP) at $L = 5$: $MP = 0$
• Total Product (TP) at $L = 5$: $TP = 50$ (ignoring the negative value)
• Average Product (AP) at $L = 5$: $AP = 10$

LAWS OF RETURNS TO SCALE It states that;

1. An increase in input may lead to more than proportionate increase in output.
2. Decrease in inputs may lead to a proportionate decrease in output.

A GRAPH Law of increasing returns to scale. If inputs are doubled then the output increases more than the double inputs.

1. Law of decreasing returns to scale occurs if a production increase in inputs leads to less increase in outputs i.e. if the inputs are doubled the number of output is less than the double inputs.

Causes of Increasing Returns to Scale:

1. Labor economies of scale
   In large-scale production, specialization and division of labor can be applied more effectively. Workers can focus on specific tasks, which increases efficiency and output.
2. Technical economies of scale
   As production scales up, firms can adopt more efficient technologies and processes. This leads to increased productivity and lower per-unit costs.
3. Marketing economies of scale
   Larger firms can spread the cost of advertising across a wider range of products. They can use mass media (newspapers, TV, magazines) for marketing, making it more cost-effective.
4. Managerial economies of scale
   In large firms, management can specialize in different areas (e.g., finance, operations, marketing), leading to better decision-making and efficiency in managing resources.
5. Economies related to transport and storage costs
   Large firms can own their transportation (e.g., trucks or ships) and storage facilities, which reduces external transportation and storage costs, leading to lower per-unit costs as production increases.

CAUSES OF THE DECREASING RETURNS TO SCALE TO OPERATE

(Dis economies of scale)

1. Marginal dis economies. As a result of increasing managerial dis economies, the decreasing return to scale operates,
2. Exhaustible natural resources.