PRODUCTION AND FACTORS OF PRODUCTION

  These mean the production resources required to produce a given product. Fraser defined factor of production as “a group or class of original productive resources”. The factors of production have been

traditionally classified as land, labour, capital and organization, the details of which are presented below:

LAND

According to Marshall, land means “the materials and forces which nature gives freely for man’s aid, inland and water, in air and light and heat”. Land refers to soil used for cultivation of construction. But in Agricultural economics land means the materials and the forces which nature gives freely for man’s aid, inland and water, in air and light, and heat (Marshall) {i.e. many things such as sunshine, rain, wind, waterfalls, seas, rivers, minerals, magnetism, forests, animals etc., given free by nature and economically useful to mankind are included in it}.

Characteristics/peculiarities of land:

1. Land is the free gift of nature and not man-made i.e. land has no cost of production of the society.

2. The quantity/ extent is finite or given i.e. limited in supply. Its supply can be neither increased nor decreased by human effort and is a permanent resource. Hence economists’ remark that land has no supply price i.e. supply of land is inelastic.

3. Land is heterogeneous (Ex: Fertility status, productivity etc.,)

4. Land has multiple uses (Ex: Cultivation, dairy farming, sheep rearing, building construction, playground and so on. As it has multiple uses, its demand exceeds the supply, boosting its value to a very high level.

5. Land subject to the operation of the law of diminishing returns (The constant and continuous cultivation with more labour & capital results in diminishing yield year by year).

Factors affecting land productivity:

1. Natural factors: Like climate, the slope of the land, chemical and biological properties of soil, rainfall etc.,

2. Irrigation potentials: The land with more irrigation potential will be more productive. Artificial means of irrigation viz., wells, tube wells, tanks, canals etc.. helps in the supply of water.

3. Organization: An efficient and capable organizer will judiciously use the land resulting in increased productivity.

4. Location: Ex: Nearness to irrigation source, market access etc.,

5. Ownership: Owners always take much interest in increasing productivity but it is reverse with the temporary settlers.

6. Availability of capital: The productivity can be increasing with the availability of seed, fertilizers, machines etc., Intensive cultivation gives more productivity, which is possible with the availability of capital.

7. Proper use: Suitability for a particular user need to be known in prior. Ex: Land use for paddy, if used for pulses, gives decreased productivity.

8. Availability of labour: If labour is efficient, trained and capable to employ techniques, the land productivity can be increased.

9. Government policy: Ex: Adoption of proper agricultural policy, providing require assistance to farmers, etc.,

10. Agricultural research: Adoption of the improved package of practices results in increased productivity.

LABOUR

The term, labour has wide and diversified meaning in economics. It can be physical work or mental work that is done by a person with an aim of earning money. It includes the work done by farmers, workers, the service of teachers, doctors, actors, etc. In the words of Marshall, labour is defined as “any exertion of mind or body undergone partly or wholly with a view to earning some good other than the pleasure derived directly from the work”. Any work that is done for pleasure does not come under labour.

Characteristics of Labour

1. Labour is Inseperable from Labourer: The worker has to sell his labour in person and he has to be physically present while delivering the work. He cannot deliver the work in absentia. It varies from labourer to labourer depending on races, climate, physical and mental alertness of labourer.

2. Labour is Perishable: Labour cannot be preserved which means that labourer has no reserve price. He has to sell the work without really minding the wages, fork, a day’s work lost is a loss forever. In other words, it is a flow resource.

3. Labour has Very Weak Bargaining Power: Perishability of labour is a prime factor for the labourer,

which rather forces him to accept whatever the wage that is offered. The weak bargaining power of the labourer is taken as an advantage by the employer.

4. Lack of Free Mobility: Compared to capital, labour is less mobile. No doubt labourers move from one place to another and from one occupation to another, but it is not a common feature. Thus, labour lacks horizontal and geographical mobility. This leads to a variation in wages among the occupations as well as spatially.

5. Supply of Labour is Independent of Demand: Supply of labour depends on the population in a country. The population is one factor which can neither be increased nor decreased overnight. The increase or decrease is a slow process and supply of labour is independent of demand.

6. Supply of Labour Peculiarly Changes with the Wages: Normally the seller of a good sells more when the price per unit of a commodity is higher and vice versa. But regarding labour, a fall in wages leads to an increased supply of labour. A fall in wages leads to a reduction in their incomes. So to make good this fall in income, family members who were not working earlier also work to supplement the family income.

Efficiency of Labour

According to economists efficiency of labour means “the ability of labour by virtue of which it is productive” It indicates the qualitative and quantitative performance of the labourer. No doubt, it is a relative term, but when one person puts up a better performance over others, we say that he is more efficient. All individuals are not equally efficient, because of several factors which are examined below:

1. Racial and Hereditary Characters: Some races are known for their physical and some are for their intellectual qualities. This emerges out of the climate and natural environment. Patterns are well built and physically very strong. The Punjabis and Rajpupts are hard-working compared to other Indians.

2. Literacy and Training: Education brightens the outlook of labourers and builds up character. Training imparted to the labourers makes them more efficient to do specialized works.

3. Environment: The working environment must be congenital for the labourers to put up an impressive performance. Environment refers to conditions in the workplace in which the labourers have to work and the equipment and machinery which they handle. Better physical facilities, modern machinery and equipment encourage us to get the best out of them.

4. Working Hours: Long working hours retard the performance and the efficiency of labourers. The working hours should facilitate them to relax. Short working hours keep them fresh and help to rejuvenate their energies.

5. Fair and Prompt Payment: Wages influence the performance of labour. Fair and prompt payments of wages encourage them to put their heart and soul into the job.

6. Capability of Organization: Organization has to plan to allocate the right people at the right places for the right work. Assignment of work as per the capabilities of labour leads to expected output and maximum profits.

7. Social and Political Factors: Social securities for the labourers and concern of State towards their conditions will be quite encouraging to improve their efficiency.

8. Personal Qualities: Personal qualities like intelligence, alertness, honesty, health etc., improve the efficiency of labourers.

9. Incentives: Incentives like extra payment and some perquisites for a good performance encourage them to be more devoted to the work.

Division of Labour

In modern production activity, the production of a good is divided into several sub-processes, and each sub-process is entrusted to a group of workers. This is what division of labour implies. Division of labour is meant to improve the efficiency of labourers.

There are three different types of division of labour

1. Simple Division of Labour

It is also known as occupational specialization. This means that people in a society undertake various occupations to make their livelihood. The choice of occupation depends on the suitability of an individual in serving society. That is how we have in a community, some are doctors, others are lawyers, some others are teachers and we have blacksmiths, goldsmiths and others craftsmen. They execute duties regularly and help society to develop by helping themselves through their professions. Some professions like dry-cleaning, tailoring, etc., have become of late very prosperous and lucrative professions. Hotelling and mechanical weaving have become giant industries, which were earlier to be taken up by only certain sections of the people as a profession. From all these things we can conclude that division of labour is fast growing with full adoption of requisite technology and providing employment to millions of people.

2. Complex Division of Labour

It is assigning the work by the task. The task here is a sub-process that is found in producing a commodity. Each group of people is given a task in which it is considered as specialists. For example, in making silk cloth, many sub-processes such as reeling, weaving, dyeing, etc., are involved and for all these sub-processes such as reeling, weaving, dyeing, etc., are involved and for all these sub-processes we require sophisticated technology and trained people to run the silk industry. Similarly, in the manufacturing of tractors, electric motors, TVs, etc., many sub-processes are involved.

3. Territorial Division of Labour

It refers to the localization of industries. Certain areas or regions specialize in the production of a commodity. The examples are textile mills in Bombay and Ahmedabad, silk sarees in Kanchi, jute mills in Kolkata, leather in Kanpur, etc.

Merits of Division of labour

1. Increases Productivity

2. Improvement in Dexterity

3. Saving of Time

4. Saving in Tools and Implements

5. Employment of Specialists

6. Large-scale Production

Demerits of Division of Labour

1. Monotony

2. Retards Human Development

3. Lack of General Responsibility

Measurement of unemployment

Chronic Unemployment or Usual Principal Status of Unemployment.

It is measured in terms of the number of persons I.e., persons who remained unemployed for the major part of the year. This measure is more appropriate to those, who are in search of regular employment. Example: Educated and skilled persons, who may not accept casual work. It is also referred to as ‘open unemployment’.

1. Weekly Status Unemployment: this is measured in the number of persons i.e., persons who did not find even an hour of working during the survey week.

2. Daily Status Unemployment: It is measured in person-days or person-years i.e., persons who did not find work on a day or some days during the survey week.

3. Under Employment: It is a very common phenomenon in less developed economies in general and rural areas in particular. Underemployment represents people employed on a part-time basis, seasonal basis or even as casual labourers. In jobs of this nature, their productivity, as well as incomes, are low.

4. Visible Under-employment: It indicates the shorter than normal periods of work. Persons involuntarily work less than the labour time they are available for gainful employment.

5. Invisible Under-employment: It is the characteristic of persons whose working time is not abnormally reduced, but whose earnings are abnormally low or whose jobs do not permit full use of their capabilities or skills or who are employed in the establishment of the economic unit whose productivity is abnormally low.

6. Involuntary Unemployment: This is defined as the unemployment due to non-availability or insufficiency of work during periods say a few weeks, a few months, or even a few years, when the worker in question wants to work.

7. Disguised Unemployment: This means that people are engaged in occupations, where their marginal productivity is very low (if not zero or negative). A shift to alternative occupations will improve their marginal productivity and add to the national income.

CAPITAL

Capital is not an original factor like land, but it is the result of manmade efforts. Man makes the capital goods to produce other goods and services. For example, machinery, raw material, transport equipment, dams, etc., are considered as capital goods.

Definitions

1. Capital is produced means of production.

2. According to Karl Marx, capital is ‘crystallized labour’. This is indicated in his book, ‘Das Kapital’.

All capital is necessarily wealth but all wealth is not necessarily capital. Money when used for the purchase of capital goods, then only it becomes capital. For instance, residential buildings are the wealth of the individuals, but these are not considered as capital.

Characteristics of Capital 

1. Capital is not a free gift of nature. It is the result of man-made efforts. Machinery, implements, etc., are considered as capital goods.

2. Capital is productive, as it helps in enhancing the overall productivity of all the resources employed in the production process. Invested capital also fetches interest for its productive capacity. Farm machinery when used with skilled labourers enhances the productivity of the land. Irrigation dam is considered as the capital good and with its water; we can bring out complementary effect on the productivity of other resources such as fertilizers, seeds, etc.

3. It is also prospective as its accumulation rewards income in future. Savings and investment in the economy lead to growth and development of the economy due to the accumulation of capital over time.

4. Capital is highly mobile as it possesses the characteristic of territorial mobility. For example, capital goods like tractor can be taken to different.

5. Capital is supplied elastic as its supply can be altered according to the need. Based on demand, the supply of capital goods can be changed.

Classification of Capital

Capital is classified based on several criteria the details of which are given below:

1. Based on Nature of Ownership

a) Individual Capital or Private Capital: These are the assets which are owned by the individuals in the business.

b) National Capital: It is the capital that is owned by the community. Examples: Airways, Railways, etc.

2. Based on Durability

a) Fixed Capital: It is the capital which is used time and agai8n in the production of other goods. Examples: Machinery, tools, etc.

b) Circulating Capital or Working Capital: It is the capital that is used once and exhausts after a single-use. Examples: Fertilizers, seeds, feeds, etc.

3. Based on the Scope of Alternative Uses

a) Sunk Capital or Specific Capital: These are the capital goods, the use of which is confined to a specific purpose. Examples: Plough, seed drill, harvester, transplanter, winnower, etc.

b) Floating capital: It is the capital good that can be used for different purposes at any time. Examples: Electricity, coal, etc.

4. Based on Incentives

a) Remunerative Capital: The capital when used for the payment of wages in the production process, is called remunerative capital. Examples: Liquid money or case, Foodgrains, etc.

b) Auxiliary Capital: It represents the various capital goods that help the labourers in the production process. Examples: Machinery, tools, etc.

5. Based on Usage

a) Production Capital: These are the capital goods which help the labourers directly in the production activity. Examples: Foodgrain, cloth, money used for consumption, etc.

b) Consumption capital: these are the goods which are consumed by the labourers. These indirectly assist in the process of production, Examples: Foodgrains cloth money used for consumption etc.

6. Based on Place

a) Internal Capital: The capital that is generated from the domestic savings of the public in a nation. Ex: Public roads, etc.

b) External Capital: This is the capital generated from the external source. Examples: Funds received from World Bank, aid from UNO, etc.

Capital formation

Murray and Nelson say that capital formation is the investment. Capital formation means increasing the stock of real capital in a country. In other words, capital formation involves making more capital

goods such as Machines, tools, factories, transport equipment, materials, electricity etc, which are all used for future production of goods. For making additions to the stock of capital, savings and investment are essential.

The amount which a community adds to its stock of capital during a year is called capital formation in that year savings is equal to total output – consumption during the year. It represents the surplus of production overconsumption.

                                                                S=Y-C

where S= Savings

Y= Total output

C = Consumption

In any form of Economy where socialist like Russia or capitalists like America, capital formation is a must for economic development.

Stages of Capital formation.

In order to accumulate capital goods, some current consumption has to be sacrificed, so that it can be diverted to new capital formation savings and investment are so consolidated to have capital formation.

Capital formation takes place in stages.

1. Creation of savings

2. Mobilisation of savings

3. Investment of savings

1. Creation of savings:

Savings are done by:

i) Individual/household/voluntary organizations

ii) Business enterprises

iii) Government on a compulsory basis

The level of saving in a particular country depends upon

1) Power to save

2) Will to save

Power to save depends upon

1) Average level of Income

2) Distribution of National Income

Apart from the power to save, the total amount of savings depends upon the will to save various personal, family and national/considerations induce the people to save people save in order to provide against old age, unforeseen emergencies. Some people desire to save a large amount to start a new business or to expand the

existing business moreover people want to make provision for education, Marriage and to give a good start in business for their children.

Savings are of two types:

1. Forced savings: Tax imposed by Government represents forced savings.

2. Voluntary savings: The savings which people do of their own free will. Business people save by retaining a part of their profits in the form of undistributed profits. They use these profits for investment in real capital. Government increases savings by collecting taxes and profits from public undertaking to build up new capital goods like factories.

2. Mobilisation of savings

The amount that was saved by individuals, businessman and Government should be transferred to businessmen (or) entrepreneurs who require them for investment. In the capital market funds are supplied by the individuals investors, banks, investment trusts, insurance companies, finance corporations, Governments etc., If the rate of capital formation is to be stepped up the development of the capital market is very necessary a well-developed capital market will ensure that the savings of the society will be mobilized and transferred to the businessmen for investment.

3. Investment of savings:

For savings to results in capital formation, they must be invested by businessmen who are honest and dynamic in the country, who are able to take risk and bear uncertainty of production.

Factors affecting capital formation:

1) Per capita income will influence the capital formation

2) Technology

3) Productivity

4) Government policies

5) Tradition/ customs of Society

6) Desire for saving the amount for old age Needs.

7) Desire for saving the amount for meeting children education, Marriages etc.

8) Good infrastructural facilities (Roads, Railways, etc.)

Causes for low capital formation

1. Low Income of Individual

2. Poor technology is being existed

3. Low productivity

4. Domestic savings are very small

5. Inducement to investment is very weak.

Why capital formation is essential:

1. For higher production & productivity

2. For a higher level of Income

3. For better employment

4. For the high standard of living

5. For better Economic condition

6. For high infrastructural facilities

Suggestions for improvement of Capital formation

1. Production should be increased by developing Agriculture, Trade, Industry, transport, banking, insurance

2. Compulsory insurance scheme should be implemented

3. Provident fund scheme should be extended

4. Tax reliefs should be given to industries which are producing capital goods.

5. Safety of life and property Guaranteed

6. Capital market should be well established

7. Population should be controlled

8. The working of stock exchanges should be improved

9. Small saving drive should be intensified

ORGANIZATION

In any business activity, there is always a person who guides and controls its function. He also coordinates and regulates all the factors which are employed in the business activity. Apart from monitoring it, he takes the responsibility for the outcome. We call such a person, an entrepreneur (organizer) and the business activity which he is doing is called an enterprise or organization. The performance of the organization depends upon the capabilities of the organizer or entrepreneur. Through the proper allocation of resources, the entrepreneur would be in a position to maximize the productivity of the resources that are used. Hence, the success or failure of the enterprise depends on the role of the entrepreneur in any business activity. Following are the prime functions of an entrepreneur.

Functions of Entrepreneur

1. Identification and Initiation: Entrepreneur is the person who identifies a particular business activity and initiates the idea of commencing the business. At this stage, the nature of the enterprise to be started is decided by the entrepreneur. He has to venture and assume full risk for maximizing profits from his chosen business enterprise.

2. Location of the Enterprise: The place where the business unit is proposed to be set up is finalized by the entrepreneur. He considers both absolute and relative advantage of enterprise in choosing a particular place.

3. Organizing: At the outset, arrangements are made to raise the required finance to commence the business. Later, the work is divided into various functions, viz., production, financing, marketing, etc. This division of functions allows for increasing the efficiency of the individuals. Once the divisions are made, the concerned persons are given adequate authority to enable them to perform their functions efficiently. Delegation of authority to a person makes him more responsible and scrupulous. Authority and responsibility always go together.

4. Supervision: It is overseeing the work of the subordinates so as to ensure the desired results. Supervision includes whether the persons and their subordinates are keeping time schedules, whether the work is performed as per the requirements, and also helping them in solving their problems.

5. Introduction of Innovation: The entrepreneur is always on the lookout for bringing innovations. It may be in terms of bringing out a variety of products, introduction of new methods of production, improving the existing method of production, making inroads into a new market, etc.

6. Risk Taking: The entrepreneur is quite prepared to accept the outcome of all his actions. In the business, he may get substantial profit from the organization or at times unexpectedly he may incur a loss as well. He accepts them with poise because he is responsible for all the happenings. All entrepreneurs in fact should have the risk-bearing ability.

FORMS OF BUSINESS ORGANIZATION

Individual Enterprise or Single Proprietorship or Sole Trader or the Sole Proprietorship

Individual enterprise is the most common form of business organization. Many small business enterprises belong to this form. These enterprises are owned and operated by a single person, who takes all the responsibilities of the outcome of the business. These enterprises are found to be small with a few

exceptions here and there. This is more or less a family proprietorship with all the family members participating in the business affairs. As far as the size of the business is concerned, it is left to the desire of the entrepreneur keeping in view of the resources at his disposal.

Merits

The owner of the business enjoys absolute freedom without the inter4ference of anybody in the business. The firms are called by the name of the entrepreneurs and some times by the name of Gods. The owner or proprietor enjoys all the profits received from the business. Capital requirements are less. Capital is supplied from the owner’s funds (equity funds) and often times there is not much distinction between personal and business assets. This type of business is more flexible allowing changes in various business decisions like an investment, sales, diversifying the business activities, expanding the size of the business, etc. In this form of business organization, there is the possibi8lity of direct contact with the customers, so that the entrepreneur gets continuous feedback. The entrepreneur controls the entire business, unless and otherwise delegated to somebody else. This type of business is very easy to start and easy to terminate.

Demerits

Since proprietor’s funds are by far the sole source of funds, there would be a limited amount of capital for the business to expand. Though funds from institutional agencies are available, the amount is restricted in view of the limited securities. Unlimited liability is a negative factor of this type of business. This means that in the event of failure of the business, creditors (lenders) are empowered to exercise every right to attach not only the assets of the business but also the personal property of owners to make good the unpaid debts. Since the power is concentrated in the hands of a single owner of the business, there is no scope for those employees of the firm who are well trained and motivated to contribute their knowledge to the business growth. This leaves a situation of discontentment among the employees, the attitude of which will not contribute to the growth of the business. Besides, employees always will have a lurking fear that their fate depends upon the skill of one individual. The continuity of the business is also questioned, as the death of the owner brings the business to a grinding halt.

PARTNERSHIP

It is an association of two or more individuals who join together as co-owners to share profits or losses in agreed proportions. The partnership comes into existence based on the goals of the co-owners. To safeguard the business interests of the partners, normally a written partnership agreement is made covering various dimensions of business viz., capital contribution, managerial responsibilities, sharing of profit and losses, withdrawal from the business, termination of the business, etc. There are two kinds of partnership, viz., general partnership and the limited partnership. A general partnership is the most common in partnership dealings. Every partner, irrespective of the percentage of capital contributed to the business, has equal say in the management of the business. Each partner has equal rights and liabilities. In a limited partnership, any number of limited partners are allowed, but there should be at least one general partner. Liability of each member is limited to the extent of investment made only. Profits are also distributed among the partners according to the contribution of capital in the business.

Merits

The basic advantage of a partnership is the generation of greater financial resources coupled with diversified managerial talents. Partners pool their resources to attract larger capital to invest in the business. It can command a great amount of credit from the institutional agencies in view of its large equity capital. Management element is also strengthened as partners possess varied managerial skills. The simplicity of the business is also another feature, for it is easy to dissolve as compared to a joint-stock company. It also enjoys the freedom from Government control. Risk of the business is shared by the partners and hence relatively it has less business risk.

Demerits

Unlimited liability is the major disadvantage of partnership. All the partners are responsible for the loss arising from the partnership business. The partners stand to lose their personal assets in the event of a liquidation. As against the individual enterprise, the ownership0 is divided into a partnership business. Every partner has an equal right in business activities. The partnership has a limited size of business and uncertain life.

The partnership may vertically split due to disagreement on a particular decision. The retirement, death of a partner, bankruptcy etc., may bring termination of the business according to law. Besides dishonest member may spoil the business with his dishonesty activities and make other partners to be responsible for his actions. It is not that much easy to find qualifies and agreeable partners for managi8ng the business on partnership. Since the decisions are taken by the consensus of all the partners, more often it is difficult to convince all the partners on certain decisions.

JOINT STOCK COMPANY

The drawbacks of individual enterprise and partnership business gave rise to the organization of another form called Joint Stock Company. More specifically the discouraging aspects of unlimited liability closely followed by limitation of funds in the above forms were taken care of by Joint Stock Company. Joint Stock Company has limited liability and the involvement of a large number of persons. This helps it to have adequate capital. Limited liability implies that in the event of loss for the company, the shareholder is responsible to the extent of his shares only. A joint-stock company is a corporate body owned by a large number of shareholders and managed by a Board of Directors elected by the shareholders. According to Prof. L.H. Hany “A joint-stock company is a voluntary association of individuals for profit, having a capital divide into transferable shares, the ownership of which is the condition of membership”. In India, the first Companies Act was passed in 1850 and limited liability was incorporated in 1857. Broadly there are two types of joint-stock companies. These are 1) Joint-stock private limited company and 2) Joint-stock public limited company. To start a joint-stock company, two documents, viz., memorandum of association and articles of association are to be submitted to the registrar of joint-stock companies. Memorandum of association contains the name of the company, the location of the head office, its aims, share capital particular, kind and value of shares and declaration of limited liability. Rules and regulations for the establishment of Joint Stock Company are incorporated in the articles of association.

Joint Stock Private Limited Company

The minimum number of members is two but the number cannot exceed 50. There is no need for the private limited company to call for a statutory meeting. Similarly, the company need not submit its annual balance sheet to the registrar of joint-stock companies. The transfer of share is generally restricted by articles. It cannot issue prospectus inviting the public to subscribe to the share capital. The word ‘Pvt. Ltd’ must be used with the name of the company.

Joint Stock Public Limited Company

The business can be started with seven persons and there is no maximum limit for members. The business shall commence only after getting the certificate of incorporation from the registrar of joint-stock companies. The public limited company must issue a prospectus inviting the public to contribute to the share capital. A statutory meeting must be held within a prescribed period and its annual balance sheet must be submitted to the registrar of joint-stock companies. The main sources of finance for the company are through shares and borrowings. The shares are freely transferable. A shareholder can sell his shares at any time he prefers. The company will not return the shares to the shareholder till it winds up the business, but shareholders can easily sell their shares through the stock exchange.

Merits

1. Large-scale Resource Mobilization. It facilitates mobilization of large scale resources. The large sum of capital can be raised from a large number of shareholders. There is no limit as far as the number of shareholders is considered in a public company. If more funds are required the number of shareholders can be increased.

2. Efficient Management: The elected board of directors and expert managers provide the needed business expertise. The efficient management of the joint-stock company provides the needed impetus for business growth.

3. Limited Liability: Limited liability encourages many individuals to invest in shares.

4. Less Risk for the Shareholder: Because of the limited liability even in the event of company incurring losses, the loss for the share. Hence there is less risk for the shareholder.

5. Perpetual Existence: It is an organization with perpetual succession. The shareholders keep on changing from time to time. But the business of the company is not affecting the existence of the company.

6. Democratic Management: The directors are elected by the shareholders; hence there is no scope for the continuation of undesirable directors. Moreover, every individual whomsoever wants to become a shareholder, he is welcome and shareholders come from all walks of life and places.

7. Social Benefits: The savings of the people which are otherwise scattered are well mobilized by companies and productively invested. Thus the social gains from the investment activities in the form of getting the goods and services they need.

8. Economies of Scale: Since the companies are large-scale organizations, they enjoy economies of scale and produce goods at lower costs and receive more profits.

Demerits

1. Concentration of Economic Powers: The owners of the company are shareholders but management is done by different individuals. The administration is concentrated in a few hands. The shareholders, who are scattered all over, cannot influence the management. They are either powerless or not interested to act as per their desires.

2. Fraudulent Management: The management of the company exhibits vested interests and shows little concern for the shareholders.

3. Delays in Decision-making: Decisions cannot be taken quickly and they are to be taken in the meeting of the board of directors or general body. It is not very easy to convene the meetings and they are time-consuming. These delays may cause further delays and result in deferred decisions.

4. Excessive State Regulation: The companies are governed by a number of rules of the Government. It is in fact compulsory because huge public funds are invested in the companies. Since non-compliance leads to penalties, companies have to give a lot of attention to these rules. Consequently, the main objective of the company is likely to be diverted.

5. Evils of Factory System: The evils of factory system like insanitation, pollution, congestion, etc., are attributed to joint-stock companies.

6. Problems in the Formation of Companies: As a matter of fact a number of stages are involved in the promotion of a company by Government. Getting the right persons an insufficient number for the company is a difficult proposition. A number of legal formalities are to be followed at the time of registration apart from the risks in the promotion of the company.

CO-OPERATIVE ORGANIZATION

The term, co-operation implies the self-help made effective through mutual help. The philosophy behind co-operative movement embodies in a slogan called “all for each and each for all”. The basic objective of the co-operation is protecting weaker sections of the society so that they fulfil their needs.

Merits

1. Membership is open to every person. None can prevent any person willing to join societies.

2. Management of the co-operatives is democratic. The members among themselves elect the board of management. Every member has equal right in electing the members irrespective of the number of shares.

3. The co-operatives purchase goods from producers directly and sell them to consumers directly. In this process, the middlemen are eliminated.

4. The motto of co-operatives is service, but not profits. Cooperatives aim at spreading the virtues of discipline, integrity, honesty, mutual help, fairness in dealings, etc.

Demerits

1. They suffer from timely and capital inadequacies. Societies aim at the betterment of weaker sections and the shares raised from them are of small magnitude. This limitation stands in the way of initiating a large scale enterprise.

2. Since there is no bar in entering into a society for anybody, the members are drawn from different sections of the society. This creates a lack of understanding among the members. The members as a result do not take much interest and leaves everything to paid workers.

3. The transactions of the society are in cash and no credit sales are allowed. Since the members come from poorer sections of society, they cannot always transact business with cash. Credit facilities which are found with private traders attract them to buy their requirements.

4. Societies function under the regulation of the Government. The government even nominates members to the management committee. In nominating the members of political parties take a major role and the business atmosphere suffers.

STATE OR PUBLIC ENTERPRISE

State enterprise is an undertaking, owned and controlled by the local or state or central Government. Entire investment or major part of the investment is done by the Government. The major considerations for

the States to undertake the business are heavy investment requirements, need to protect weaker sections against economically strong, and when private traders are hesitant to venture into the enterprise. State enterprises are found in manufacturing, trading and service activities. These enterprises are managed by the Government programmes are implemented through State enterprises.

Merits

1. Industrial development is possible through State enterprises. The private sector does not show much concern for initiating projects requiring huge capital and long gestation periods.

2. Planned and balanced growth is possible through the entry of Government. Private enterprises show their preference for establishing industries in developed areas. Government is prepared to establish industries even in underdeveloped areas which ensure balanced growth in all spheres of activities.

3. Government takes over the sick units, and run them as State enterprises in the interest of the nation.

4. The profits obtained by the State concern are ploughed back into the business for further expansion and diversification and also for the welfare of the community in general.

5. Government enterpri9ses encourage a socialistic pattern of society which reduce economic disparities.

6. There is an attraction for aspiring qualified individuals to join the Government service. It commands superior talents.

7. The employees feel greatly secured in Government service.

Demerits

1. The proposed projects by the Government are plagued by undue delays. This is due to the complicated procedural formalities coupled with non-release of funds in time. These delays make the planned estimates go topsy-turvy, consequently, the expected benefits would not be forthcoming timely.

2. Another demerit of public concern is high overhead costs. These arise out of large amounts of expenditure on unproductive items coupled with high investment on amenities for employees even before the profit is earned.

3. State enterprises when compared to private enterprises are not managed efficiently resulting in losses.

4. The security of the job of an employee in a State organization makes him not to bother too much to deliver the goods, for he gets hid pay regularly.

5. Manpower planning is a lacuna in State enterprises and they employ persons disproportionate to their needs. This results in overstaffing leading to inefficiency and lethargy.

6. Red tape is prevalent in State enterprises.

7. These are by far service oriented rather than profit-oriented.

Production Function

Production is the result of the co-operation of four factors of production viz., land, labour, capital and organization. This is evident from the fact that no single commodity can be produced without the help of any one of these four factors of production. Therefore, the producer combines all the four factors of production in a technical proportion. The aim of the producer is to maximize his profit. For this sake, he decides to maximize the production at minimum cost by means of the best combination of factors of production.

In simple words, production function refers to the functional relationship between the quantity of a good produced (output) and factors of production (inputs).

In this way, production function reflects how much output we can expect if we have so much of labour and so much of capital as well as of labour etc. In other words, we can say that production function is an indicator of the physical relationship between the inputs and output of a firm. Mathematically, such a basic relationship between inputs and outputs may be expressed as:

                                                          Q = f( L, C, N )

Where Q = quantity of output

L = Labour

C = Capital

N = Land.

Hence, the level of output (Q), depends on the quantities of different inputs (L, C, N) available to the firm. In the simplest case, where there are only two inputs, labour (L) and capital (C) and one output (Q), the production function becomes.

                                                               Q =f (L, C)

Features of Production Function:

1. Substitutability: The factors of production or inputs are substitutes of one another which make it possible to vary the total output by changing the quantity of one or a few inputs, while the quantities of all other inputs are held constant. It is the substitutability of the factors of production that gives rise to the laws of variable proportions.

2. Complementarity: The factors of production are also complementary to one another, that is, the two or more inputs are to be used together as nothing will be produced if the quantity of either of the inputs used in the production process is zero. The principles of returns to scale is another manifestation of complementarity of inputs as it reveals that the quantity of all inputs is to be increased simultaneously in order to attain a higher scale of total output.

3. Specificity: It reveals that the inputs are specific to the production of a particular product. Machines and equipment’s, specialized workers and raw materials are a few examples of the specificity of factors of production. The specificity may not be complete as factors may be used for the production of other commodities too. This reveals that in the production process none of the factors can be ignored and in some cases, ignorance to even slightest extent is not possible if the factors are perfectly specific.