(a) What is an industry?
(b) Explain the following:
(i) division of labour;
(ii) economies of scale.
(c) Outline any four internal economies of scale.
Explanation
(a) An industry is a group of related firms classified according to the type of goods and services produced. It is a group of firms producing similar commodities or offering similar services.
(b)(i) Division of labour is the breaking down of a production process into different stages such that each part is handled by a particular individual, unit or department.
(ii) Economies of scale are the internal and external cost-saving benefits that accrue to a firm as it expands in size.
(c)(i) Marketing economies – Larger firms can buy inputs in bulk and enjoy discount and also employ an efficient and well organized marketing strategy and also afford to advertise more.
(ii) Risk - bearing economies – Larger firms can diversify their products so that they will not suffer unduly if one line of production becomes unprofitable.
(iii) Financial economies – Larger firms can easily access loans from banks and other financial institutions at lower interest rates because they have collateral and are more credit worthy.
(iv) Technical economies – As a firm expands in size, it can afford advanced technology and sophisticated plants and machinery, leading to increased output at a lower unit cost.
(v) Managerial economies – Larger firms can employ well-qualified and competent personnel to supervise various departments.
(vi) Welfare economies –Larger firms can provide better packages for employees to boost their morale e.g. subsidized housing, canteen services etc.
(vii) Research and development economies – Larger firms have the resources to set up their own research departments or units which promote innovation and inventions.