Production is one of the most important concepts in economics. It deals with the process by which resources are combined to create goods and services that satisfy human wants.

Table of Contents

9.1 Meaning of Production

Production refers to the creation of utility. Utility means usefulness or the capacity of a good or service to satisfy human wants. Production does not necessarily mean creating something new—it can also mean transforming existing things into more useful forms.

Forms of Utility Created:

Form Utility: Changing the form of a good to make it more useful (e.g., turning timber into furniture).
Place Utility: Making goods available where they are needed (e.g., transporting yams from Benue to Lagos).
Time Utility: Making goods available when they are needed (e.g., storing grains until off-season).
Possession Utility: Transferring ownership of goods from sellers to buyers.

Key Points to Master:

Production = creation of utility.
It includes manufacturing, distribution, and rendering of services.
WAEC often tests the different forms of utility.

9.2 Types of Production

Primary Production: Involves extracting raw materials directly from nature. Examples: farming, fishing, mining, forestry.
Secondary Production: Involves transforming raw materials into finished or semi-finished goods. Example: textile mills, breweries, furniture making.
Tertiary Production: Involves services that aid production and distribution. Examples: banking, transport, insurance, warehousing.

Key Points to Master:

Primary = raw material extraction.
Secondary = manufacturing and processing.
Tertiary = services that aid production.
WAEC may ask students to classify occupations into these types.

9.3 Factors of Production

There are four main factors of production:

Land: All natural resources (soil, water, minerals, forests). Reward = Rent.
Labour: Human effort (physical and mental) used in production. Reward = Wages.
Capital: Man-made resources used for further production (machines, buildings, tools). Reward = Interest.
Entrepreneurship (Enterprise): The risk-taker who organizes land, labour, and capital. Reward = Profit.

Key Points to Master:

Always link factor to its reward.
Entrepreneur coordinates other factors.
WAEC often asks: “State the factors of production and their rewards.”

9.4 Division of Labour

Definition: Breaking down production into different tasks, with each worker specializing in one aspect.

Advantages:

Increased efficiency.
Saves time.
Encourages use of machines.
Improves skills.

Disadvantages:

Boredom from repetition.
Risk of unemployment if machines replace workers.
Interdependence (if one sector fails, others suffer).

Key Points to Master:

Division of labour is common in factories.
Specialization is its basis.
WAEC usually asks for 4–5 advantages/disadvantages.

9.5 Scale of Production

Refers to the size of output a firm produces.

Small Scale Production: Low output, little capital, small workforce.
Large Scale Production: High output, heavy use of capital, economies of scale.

Economies of Scale (Advantages of Large-Scale Production):

Internal Economies (benefits to one firm): technical, financial, managerial, risk-bearing.
External Economies (benefits to industry as a whole): skilled labour pool, better infrastructure.

Diseconomies of Scale (Disadvantages of Large-Scale Production):

Management difficulties.
Workers may feel alienated.
Coordination problems.

Key Points to Master:

Economies of scale = cost per unit falls as output increases.
Diseconomies = cost per unit rises due to inefficiency.

9.6 Production Function

Shows the relationship between input (resources) and output (goods and services).

General form:
Q = f(L, K, N, E)
Where Q = output, L = labour, K = capital, N = land, E = entrepreneurship.

Short Run vs. Long Run:

Short Run: At least one factor (usually capital) is fixed.
Long Run: All factors are variable.

Key Points to Master:

Formula is common in WAEC questions.
Students should understand short run vs. long run.

9.7 Law of Variable Proportions

States that as more units of a variable factor (e.g., labour) are combined with fixed factors (e.g., land), output increases at first at an increasing rate, then at a decreasing rate, and eventually falls.

Stages:

Increasing returns.
Diminishing returns.
Negative returns.

Key Points to Master:

Law applies in the short run.
Explains diminishing marginal product.
Common WAEC essay question.

9.8 Productivity

Definition: Measure of efficiency in production.

Labour Productivity = Total Output ÷ Number of Workers.
Capital Productivity = Total Output ÷ Units of Capital.

Ways of Improving Productivity:

Better training.
Use of modern technology.
Improved working conditions.
Motivation of workers.

Key Points to Master:

Productivity measures efficiency.
WAEC often asks how to improve productivity in Nigeria.

30 Objective Questions (Multiple Choice)

1. The process of creating goods and services to satisfy human wants is called:
A. Consumption
B. Production
C. Distribution
D. Exchange

2. The three main factors of production are:
A. Land, Labour and Capital
B. Land, Labour and Money
C. Labour, Money and Time
D. Land, Labour and Goods

3. Which of the following is an example of an entrepreneur?
A. A bank manager
B. A factory worker
C. A person who combines resources to start a business
D. A student in school

4. Which of the following is a feature of land as a factor of production?
A. It is man-made
B. It is fixed in supply
C. It earns interest
D. It depreciates over time

5. The reward for labour is:
A. Rent
B. Profit
C. Wages
D. Interest

6. The factor of production regarded as a “mobile factor” is:
A. Land
B. Capital
C. Labour
D. Enterprise

7. Which of the following is an example of working capital?
A. Office building
B. Raw materials
C. Tractor
D. Factory machines

8. An example of fixed capital is:
A. Fuel
B. Flour
C. Factory building
D. Office stationery

9. The factor of production that bears risks and takes decisions is:
A. Capital
B. Labour
C. Enterprise
D. Land

10. Which of the following is not a type of labour?
A. Skilled
B. Unskilled
C. Semi-skilled
D. Natural

11. The use of machines in production is an example of:
A. Division of labour
B. Capital intensive production
C. Labour intensive production
D. Primitive production

12. Which of the following best describes division of labour?
A. Workers doing all tasks in rotation
B. Production of one type of good only
C. Breaking down production into simple tasks
D. Sharing profits among workers

13. Specialization increases efficiency because:
A. Workers become lazy
B. Workers gain experience in a particular task
C. Workers do not need supervision
D. Workers receive higher wages

14. A disadvantage of specialization is:
A. High productivity
B. Time saving
C. Risk of unemployment
D. Increased skill development

15. The difference between direct and indirect production is that:
A. Direct production is for exchange, indirect is for self-use
B. Direct production is for self-use, indirect is for exchange
C. Direct production uses machines, indirect does not
D. Direct production is large-scale, indirect is small-scale

16. Which of the following is an example of direct production?
A. A teacher giving lessons in school
B. A farmer growing crops for family consumption
C. A doctor treating patients in a hospital
D. A tailor making clothes for sale

17. The use of both labour and machines in production is called:
A. Capital intensive production
B. Labour intensive production
C. Modern production
D. Intermediate production

18. Which of these is not a characteristic of capital?
A. Man-made
B. Can be increased
C. Earns wages
D. Assists production

19. The production process that changes raw materials into finished goods is known as:
A. Primary production
B. Secondary production
C. Tertiary production
D. Direct production

20. Which of the following is an example of tertiary production?
A. Fishing
B. Food processing
C. Transportation
D. Farming

21. The branch of production that deals with extraction of raw materials is:
A. Secondary production
B. Tertiary production
C. Primary production
D. Direct production

22. Which of these is not a form of capital?
A. Fixed capital
B. Social capital
C. Working capital
D. Domestic capital

23. An entrepreneur is important in production because he:
A. Provides raw materials
B. Supervises only
C. Organises and combines resources
D. Consumes goods

24. The process of turning cotton into cloth is an example of:
A. Primary production
B. Secondary production
C. Tertiary production
D. Indirect production

25. A typist working in a bank is an example of:
A. Skilled labour
B. Semi-skilled labour
C. Unskilled labour
D. Professional labour

26. The main advantage of division of labour to a worker is:
A. Reduced skill
B. Higher productivity
C. Loss of interest in work
D. Increased unemployment

27. The type of capital represented by roads, bridges and schools is:
A. Fixed capital
B. Social capital
C. Working capital
D. Circulating capital

28. The level of output produced by a worker per unit of time is called:
A. Average cost
B. Labour efficiency
C. Division of labour
D. Wage rate

29. Which factor of production is regarded as a gift of nature?
A. Land
B. Labour
C. Capital
D. Enterprise

30. Which of the following is a limitation of division of labour?
A. Production of goods in large quantities
B. Development of skills
C. Monotony and boredom
D. Increase in speed of production

15 Essay Questions (WAEC Style)

1. Define production. Explain the major types of production with suitable examples.

2. State and explain four characteristics of land as a factor of production.

3. What are the different kinds of labour? Illustrate each with examples.

4. Describe the role of the entrepreneur in the production process.

5. Distinguish between fixed capital and working capital with examples.

6. (a) Define division of labour.
(b) Highlight five advantages and four disadvantages of division of labour.

7. Explain five ways in which labour differs from capital.

8. Differentiate between direct and indirect production with examples.

9. Identify and explain the three main branches of production.

10. Describe four ways in which the government contributes to production in an economy.

11. List and explain five factors that influence the efficiency of labour.

12. Discuss five advantages of specialization to a country.

13. Explain the relationship among land, labour, capital and entrepreneur in the production process.

14. With examples, explain five limitations of division of labour.

15. Explain five ways in which capital contributes to production.

Perfect 👍. Let’s now provide the Answer Key for Chapter Nine: Theory of Production.

I will give:

Objective Question Answers (30) with brief explanations
Essay Question Answers (15) with full WAEC-style step-by-step model answers

✅ Answer Key – Chapter Nine: Theory of Production

Objective Questions Answers (with Explanations)

1. B – Production → It is the process of creating goods and services.
2. A – Land, Labour and Capital → These are the classical factors of production.
3. C – A person who combines resources to start a business → Entrepreneurs organise other factors.
4. B – It is fixed in supply → Land cannot be increased by man.
5. C – Wages → Reward for labour is wages.
6. C – Labour → Labour can move from place to place.
7. B – Raw materials → Working capital includes items used up in production.
8. C – Factory building → Fixed capital includes durable assets.
9. C – Enterprise → Entrepreneurs take risks and decisions.
10. D – Natural → Labour must be human effort; “natural” is not a labour type.
11. B – Capital intensive production → Use of machines more than human labour.
12. C – Breaking down production into simple tasks → Division of labour definition.
13. B – Workers gain experience in a particular task → Leads to efficiency.
14. C – Risk of unemployment → Too much specialization can displace workers.
15. B – Direct production is for self-use, indirect is for exchange → Key difference.
16. B – A farmer growing crops for family consumption → Direct production = for self.
17. D – Intermediate production → Combination of labour and machines.
18. C – Earns wages → Capital earns interest, not wages.
19. B – Secondary production → Transformation of raw materials.
20. C – Transportation → Tertiary production provides services.
21. C – Primary production → Extraction of raw materials.
22. D – Domestic capital → Not a standard classification.
23. C – Organises and combines resources → Role of entrepreneur.
24. B – Secondary production → Cotton → cloth = processing.
25. B – Semi-skilled labour → A typist has some training but not professional.
26. B – Higher productivity → Major benefit to workers.
27. B – Social capital → Infrastructure provided by government.
28. B – Labour efficiency → Output per worker per unit time.
29. A – Land → Land is a natural gift.
30. C – Monotony and boredom → Major limitation of division of labour.

1. Define production. Explain the major types of production with suitable examples.

Definition: Production is the process of creating goods and services to satisfy human wants.
Types:
1. Primary production → Extraction of raw materials (e.g., mining, fishing).
2. Secondary production → Processing raw materials (e.g., textile, food processing).
3. Tertiary production → Services (e.g., banking, transport, teaching).

2. State and explain four characteristics of land as a factor of production.

Free gift of nature – Land is not created by man.
Fixed in supply – Cannot be increased by human effort.
Immobility – Land cannot be moved from one place to another.
Varies in fertility – Some lands are more fertile than others.

3. What are the different kinds of labour? Illustrate each with examples.

Skilled labour – Requires training (e.g., doctors, engineers).
Unskilled labour – Requires little or no training (e.g., cleaners, messengers).
Semi-skilled labour – Involves some training (e.g., drivers, typists).

4. Describe the role of the entrepreneur in the production process.

Combines other factors of production.
Takes business risks.
Provides innovation.
Makes critical decisions.
Bears profit or loss.

5. Distinguish between fixed capital and working capital with examples.

Fixed capital: Durable assets (e.g., factory buildings, machines).
Working capital: Short-lived inputs (e.g., raw materials, cash).

6. (a) Define division of labour. (b) Highlight five advantages and four disadvantages.

Definition: Division of labour is breaking production into smaller tasks, each handled by a worker.
Advantages:
1. Higher productivity
2. Saves time
3. Development of skills
4. Encourages invention
5. Reduces unit cost
Disadvantages:
1. Boredom and monotony
2. Risk of unemployment
3. Loss of craftsmanship
4. Interdependence among workers

7. Explain five ways in which labour differs from capital.

Labour is human effort; capital is man-made asset.
Labour cannot be separated from owner; capital can.
Labour is perishable; capital can be stored.
Labour earns wages; capital earns interest.
Labour supply may vary; capital can be accumulated.

8. Differentiate between direct and indirect production with examples.

Direct production: For personal consumption (e.g., farmer producing for family).
Indirect production: For exchange in the market (e.g., baker making bread for sale).

9. Identify and explain the three main branches of production.

Primary production – Extraction of raw materials.
Secondary production – Processing into finished goods.
Tertiary production – Services supporting production.

10. Describe four ways in which the government contributes to production.

Provision of infrastructure (roads, power).
Training and education (schools, skills centres).
Financing through loans.
Regulation and policy guidance.

11. List and explain five factors that influence the efficiency of labour.

Education and training
Health and nutrition
Wages and motivation
Availability of tools and machines
Working conditions

12. Discuss five advantages of specialization to a country.

Higher productivity and output.
Better quality of goods.
Encouragement of trade.
Development of skills and technology.
Lower cost of production.

13. Explain the relationship among land, labour, capital and entrepreneur in production.

Land provides raw materials.
Labour provides human effort.
Capital provides tools and machines.
Entrepreneur organises and directs other factors.

14. With examples, explain five limitations of division of labour.

Boredom → worker repeating same task.
Risk of unemployment if machines replace workers.
Over-dependence among workers.
Decline in craftsmanship.
Disruption in production if one stage fails.

15. Explain five ways in which capital contributes to production.

Provides tools and machines.
Improves efficiency of labour.
Reduces cost of production.
Facilitates large-scale production.
Enhances innovation and technology.