00:00 Hello guys, welcome to this lesson and this is economics where SS1, my name is Cornelius

00:18 and I'm your instructor and today's in this lesson we'll be talking about theory

00:24 of production and in our lesson we're going to be covering the meaning of production,

00:30 types of production, the factors of production, division of labor and specialization and we'll

00:36 close up at scale of production. Now what is production? Production refers to the various economic

00:43 activities aimed at the creation of goods and services and the distribution of these goods and

00:49 services to the final consumers for the satisfaction of human wants. Simply put, economic activities

00:55 that lead to the production of goods and services that satisfy human wants. Now one critical

01:00 thing to note is that okay we said it can also be defined as the creation of utility which brings

01:06 us to a critical point which this means that all goods and services produced most possess utility

01:13 they must be able to satisfy a human want. Humanity doesn't satisfy a human want, it doesn't count

01:19 for production. Now production includes the creation of tangible goods as well as the

01:26 production of services. And changeable goods are those things that we can hold onto their physical,

01:30 we can see them. Services are obviously services, things that are rendered towards your

01:36 haircuts, your legal advice, your medical services and all of that, things that we can't see that are

01:41 rendered towards those are services. It is important to note that production is only complete

01:47 when the goods or service gets to the final consumer. So until and if you remember when we

01:53 when we defined production we says it is the production or the creation of goods and services

01:57 and the distribution to the final consumer for the satisfaction of one. So until it gets to the

02:02 final consumer if the production is not complete or the production process or cycle as you may

02:08 is not complete. Now types of goods are going to be talking about goods and services commodity.

02:14 So we are going to break them into consumer goods which refers to those goods that are produced

02:20 for direct consumption by the end user. They are ready for consumption once you get the goods

02:25 to consume it, your biscuits is the consumer goods, your notebook is the consumer goods,

02:29 your uniform, your sandals, those are consumer goods. The moment you pick them up you can use them.

02:34 Capital goods are those goods that go into the production of all goods of other goods and services.

02:40 So your raw materials are capital goods. They are not ready for consumption. They need to be processed.

02:45 They need to go into or need to be further walked on for them to become finished goods or service.

02:52 Now types of production. They are basically three levels or three types of production. You have

02:59 the primary production, secondary production and tertiary production. So what is primary

03:04 production? Primary production is the extraction of raw materials from nature. These raw materials

03:10 could be from beneath the earth's surface or from the oceans. The industries involved in

03:16 this level of production that's primary production are commonly referred to as the extractive

03:19 industries because their work is extraction. So they are getting the minerals out of the ground.

03:24 They are getting the food out of the ground or from the ocean as we've mentioned. So the products

03:31 from the primary production form the basis for further production. So without the primary

03:35 production, we can't go on to the secondary and tertiary production. The primary production is

03:41 the starting point. That's the starting block of the entire production chain. Which brings us to

03:46 secondary production. Secondary production involves the transformation of raw materials or semi-finished goods

03:51 into finished goods for consumption by the end users. So when we get the products of our primary

03:57 production, we take it to the secondary production. We walk on it further and we produce a finished

04:04 goods. That is the secondary production. So the extractive industries provide the raw materials

04:09 with which secondary production is carried out. Now we said the primary production industries are

04:16 referred to as the extractive industries. Now the secondary production industries are referred to

04:21 as manufacturing and construction. So they take the produce or raw materials and they manufacture

04:27 something or they construct something out of primary production. So the examples are the

04:33 manufacturing of automobiles, clothing, housing and so on and so forth. Now we move on to tertiary

04:39 production. So tertiary production is the, it covers the provision of services which enable the

04:45 produce goods and services to get to the final consumer. So the primary guys bring out the raw

04:50 materials, secondary guys transform the raw materials into finished goods. And then the other

04:57 processes that enable the finished goods to get to the final consumer, that is what we refer to

05:04 as tertiary production. So for example we have distributive traders, the bank insurance,

05:11 transports, communication, government services such as administration, law, defense, healthcare.

05:17 So the tertiary level of production is more of a facilitation. So it enables all that has been

05:24 done at the primary and the secondary point to get to the final consumer. Remember when we

05:29 defined we said that until the produce or the commodity gets to the final consumer, the production

05:34 cycle is not complete. So the tertiary, the industries at the tertiary level of production

05:41 help us to complete that last phase of the production process or the production cycle.

05:46 Now what are factors of production? They are the resources or the components that are

05:53 combined together in order to produce goods and services. So when we are producing, we are not

05:59 producing out of thin air. We need to put in resources, things go into the production. So those

06:05 things that we combine that bring about the goods and service or the commodity is what we refer to

06:10 as the factors of production. And therefore of them, before we went to the four of them, we want to

06:14 point out that each factor of production has its own reward. Nobody works for free. In our last lesson

06:19 we talked about price and how price drives the price system works. There's the price defines

06:24 what's going to happen. So nobody's doing anything voluntary, sorry, as a form of charity,

06:30 everybody has a price at the tick at the end. And so the reward for each of the,

06:36 each of these factors of production have their own rewards for their contribution to the production

06:40 process. And as we treat each of them, we'll see what these rewards are. So what are these factors

06:45 of production? We have land, we have labor, we have capital, and we have entrepreneurship or enterprise.

06:52 Now land. Land can be defined or is commonly defined as the free gift of nature. It refers to both

07:01 the surface of the earth and all the natural resources that are on the earth's surface as well

07:06 as beneath. So in economics, when we talk about land as a factor of production, we're not just talking

07:10 about the ground or the earth itself, the earth's surface. We're talking about all the other natural

07:15 resources available on the earth and beneath the earth. So we said land also includes mineral deposits

07:23 that is beneath the earth. What are resources also counts as land? Lands and forests, that's physical

07:29 land and forests, those also qualify as land. And we're talking about rewards. So the reward for land

07:35 is rents. So when land contributes to the entire production process, land is rewarded with rents.

07:40 That rents collected by the owner of the land or the group of people that own the land. So the

07:46 higher the value of the land, the higher the rents. There's also important to note that the presence

07:52 of land resources does not automatically make a nation rich. So we could have all the land resources,

07:57 we could have the oceans, we could have natural resources. But that doesn't just mean it doesn't

08:02 translate to wealth immediately. We have to put these land resources into productive use and

08:08 then we generate value, which can now be exchanged. And that is how when we now exchange that value,

08:13 and we get value for it or money for it, then that is how we make use of the land resources. Just

08:21 being there is not enough. We move on to the characteristics of land. So the first one,

08:26 like in our definition, we say land is a free gift land, of course, naturally. Nobody creates land,

08:31 nobody brings land to the earth when they come. It is geographically fixed. This refers to the land

08:41 or the physical land component, because we said land also covers mineral resources and water

08:47 resources and the things that are under. But the location of land is fixed. So the location where we

08:53 get those resources are fixed. You can't move them. But maybe when we extracted the ones that can be

08:58 extracted, then those ones are moved by a body location of land itself or the source of land is fixed.

09:04 Also the supply is fixed. So we have all we have is what we have. We do not have more. So that's

09:10 why we have to be very careful or very intentional about how we use these resources. So we said the

09:19 supply is fixed. We cannot replenish it. If we exhaust all our mineral reserves or mineral resources,

09:25 we cannot get more of them. We can just go online and shop for more. Then we said land is subject

09:30 to diminishing returns. The more it is used, the less productive it is. And we see this typically

09:36 in agriculture. So the more the farmers use a certain portion or piece of land, the less productive,

09:41 because they're using all the resources, the nutrients in that land. So they have to sometimes give

09:47 it time to rest and so it can replenish and then come back and they use it again. So land is subject

09:53 to diminishing returns. The more we use it, the less productive it gets. The last one,

09:58 land has no cost of production. Like I said, nobody is able to manufacture land. So it doesn't cost

10:05 anything to produce it. It occurs naturally. We move on to our next factor of production, which is

10:12 labor. And labor refers to all human efforts which could be physical or mentor that goes into

10:19 production. And the reason why we state that it could be physical or mental is because when we

10:28 think of labor, it's easy to just have that image of physical activity or physical work. But the

10:33 accountant is also doing labor. The lawyer is also doing labor. So it's not always about physical

10:42 work and heavy lifting. There's also the mental path to the work. The musician is also doing labor.

10:48 Now the reward for labor is wages and salaries. So when labor contributes to the production process,

10:54 labor gets wages or salary. And labor is the human element of production. Now we come to

11:03 characteristics of labor. The first one is labor is mobile. So when we talk about land, we said

11:08 how the land is fixed. We cannot move it. But labor on the other part is mobile. And we can move

11:13 labor both geographically. Meaning that labor can move from one geographic location, which could

11:19 be a state, it could be a country, it could be a continent. So you can have people moving from,

11:23 you can have doctors moving from Nigeria to Europe. You can have lawyers moving from Nigeria to

11:29 Asia, sort of like that. So labor is mobile geographically. And labor can also be

11:35 mobile occupationally. So if you have people that are working factories, if a certain factory is

11:42 no longer, if a certain industry is no longer productive, the labor from the factories in those

11:48 industries can be moved to other places and their hands or their skills can be used in other

11:55 areas. So labor is mobile, but geographically and occupationally. Labor has feelings. Like we said,

12:00 labor is a human element or one of the human components of the production process. So labor

12:06 has feelings. You can't use labor anyhow. You have to get labor's consent. Except we are talking

12:12 about slavery. Labor cannot work without its consent. And even when it works with consent,

12:18 there are limits. There are agreements to how labor is going to work. You can't have someone working

12:22 24 hours a week, a week, a week, 70s a week. Now the next point of our characteristics of labor

12:30 is that labor, the ownership cannot be separated from its use. The ownership of labor and the use of

12:37 labor are one and the same. So unlike land or capital, that you can sell land. So the ownership

12:43 is separate from the component itself. You can sell land and you change the ownership.

12:49 You can lend out money and that which is capital and you can change hands. But labor cannot change

12:55 hands. You have your skill. You are you. You cannot separate or bring out extra skill from you

13:00 and use it elsewhere. And then with a labor, it's only purchased for immediate use and cannot

13:06 be stored for future use. So I cannot employ someone and store them to use in the future.

13:12 Maybe because they are services that you are cheaper now. When you employ labor into the production

13:18 process, you have to use that resource at that point. You cannot keep labor for future use

13:25 Now we move on to capital. We said all capital is defined as all man made production resources,

13:34 productive resources, all the productive resources that are made by man. This is the contrast

13:42 for land. So land is all resources that are called naturally. But the ones that are called

13:48 because they were created by man and going to production process, that is what we refer to as

13:52 capital. So it can also be defined as any form of wealth that is set aside for the production of

13:58 further wealth. It includes anything that has been produced not for direct consumption,

14:03 but in order to aid further production. So if it's going to be used up, if we are going to consume

14:09 it immediately, then it's not capital. But once it when it is produced to go into or the production

14:15 process, then it will refer to it as capital. So examples of capital we're talking about tools

14:21 and machines, equipment and so on and so forth. It could also be money. So as long as it goes into

14:28 the productive process to bring about more wealth or more goods and services, then it's account

14:35 as capital. The reward for capital is interest. So when capital places rule in the production process,

14:43 it is rewarded with interest. So capital is commonly classified into two groups. So you have the fixed

14:52 capital and circulating capital. Fixed capital refers to those capital imputes that are not used up.

15:00 So if that capital goes into the production process and it comes out at the end of the process,

15:06 the same way we don't exhaust it. We can't use it up. Then it is fixed capital. It is fixed. It cannot

15:11 be changed. It doesn't run out. That's what we said. Those capital imputes that are not used up

15:18 in the production. Examples, you have buildings, you have machinery, you have tools and equipment.

15:23 So if you use a cake mixer, for example, in the production of cake, at the end of that production,

15:30 the cake mixer doesn't finish. It's still there. It can go for multiple rounds of cake mixing.

15:37 Now that is fixed capital. So we move on to circulating capital. So this is the opposite of fixed

15:42 capital. Those capital imputes that are used up in the course of production or transformed into

15:49 something else or into finished, most likely, finished goods at the end of the production process.

15:53 That is all we refer to as circulating capital. So example is fur. So when let's assume there is a

15:59 factory that runs on fur, it could be diesel, it could be petrol. At the end of the day or at the end

16:05 of a certain period, the fur that goes into that production process doesn't come out, is used

16:12 of degenerator, bonds it up. Also raw materials. The raw materials are going into production. They do

16:18 not come out. The same dosa, circulating capital units. Now characteristics of capital. The first

16:26 one, like we said in our definition, capital is man made. Capital is made by man. It doesn't

16:31 occur naturally. I can't, money doesn't grow. Trees, equipments, plant and machinery do not just

16:39 come into existence. Someone has to have made them. And then we say they are durable. They are not

16:46 used up. You can hold on to it for a long period. When we talked about a label, we said you can't

16:50 employ a label and store it for future use. You have to use it right at that point. But for

16:55 capital, you can store capital. The money can stay in the bank and to the right time or the time

17:01 when it's ready for use. You can also have your, you can buy plants and equipments and you store them

17:06 for when you're ready to use them. Capital is durable. It exists in different forms. We already

17:12 touched on that when we talked about when we treated a definition. Capital can exist in different

17:18 forms like buildings. It could be motor vehicles. It could be plants and machinery. It could be money.

17:24 Capital or like a label that is just like the human components. Capital exists in different

17:30 forms. And then capital is subject to depreciation, especially physical assets. So this means that

17:36 the value of capital reduces with time and usage. Capital depreciates. Last one, capital supports

17:45 large-scale production. So if we want to ramp up our productive capacity, we can put in more

17:51 capital inputs. It could be money to help us get equipment. It could be the equipment themselves

17:56 and it could be money to help us get more hand, which is the label, the label elements of production.

18:01 So capital can facilitate large-scale production. It can move us from substance or small-scale

18:08 production to the point where we are producing rather in large-scale. Now we move on to the last

18:15 factor of production, which is entrepreneurship or enterprise. And this is the factor of production

18:20 that coordinates and organizes the other three factors in order to produce goods and services.

18:26 So you have your land, you have the label, you have the capital. We need coordinating elements.

18:31 Those factors of production do not, they can't take initiative. They can't walk by themselves.

18:37 Someone has to, one element has to come in and define rules for every other person and

18:44 apply them into the production process. So entrepreneurship bears the risk involved in running the

18:52 production process or the business activity. The functions of this factor that is entrepreneurship

18:58 are not necessarily a single person task. So entrepreneurship is not in some organizations,

19:04 you have a single, it's a one-man business, which is a sole proprietorship. And that in a sole proprietorship,

19:11 one person handles this component of the factor of production. But in some, in big organizations,

19:17 many other forms of organizations, what you have is a group of people, you could have

19:21 a board of directors, you could have a board of executives, and they take on this rule of entrepreneurship

19:26 or enterprise. Now the reward for entrepreneurship is profits. So when entrepreneurship plays its own

19:33 role, the production process gets profits as its return, as its reward. Now characteristics

19:40 of entrepreneurship. The first one is risk-taking. The entrepreneur takes risk. He is going to decide,

19:47 because it's not in its guarantee, nothing is setting. He could invest in his label, land,

19:52 and capital, and he will lose it all. But he's one that bears that responsibility.

19:59 Next one is organization, coordination, and control. The entrepreneur or the entrepreneurship

20:05 element defines what's what amount. So what the roles that every other component of the production

20:15 process is going to play. The entrepreneurship or entrepreneur defines the roles. He organizes

20:20 the coordinates. And he's the key. The entrepreneurship takes charge of decision making. So like I said,

20:26 someone has to lead. Someone has to give charge. Someone has to decide, okay, this is how much we're

20:30 going to produce this week. This is what we're going to produce. This is how they're going to loop.

20:35 This is where they're going to sell them. This is how much we're going to sell them for. All the

20:38 decision making, the entrepreneurship element or the entrepreneurship component of production handles

20:43 that. And then the last one is the provision of capital. So we said, the production process

20:49 doesn't just like spring gop. Someone has to bring all the resources together. So the entrepreneur

20:56 or the entrepreneurship component handles the provision of capital. So when capital comes in,

21:00 we're able to get land, we're able to get labor and we go about producing goods and services.

21:08 Now we move on to division of labor. So division of labor is the breaking down of the production

21:15 process into a number of separate operations whereby each operation is undertaking or performed

21:21 by one person or a group of persons. So if your form teacher comes to class and the class

21:27 is dating and your form teacher says, I want this class clean in the next five minutes,

21:31 one person is not going to do all of the work. So most likely, we'll have people wiping the windows,

21:38 we'll have people sweeping the floor, we'll have people arranging the seats, we'll have people

21:43 setting the charts and all the maps in the class properly and ensuring that the the board with

21:48 that black or marker board is clean. That is division of labor. When we have, when the task is broken

21:54 down into component parts and then assigned to individual players to take on those component parts,

22:01 that is division of labor. You could think of it as, say at home, for example, when the house

22:07 needs to be cleaned, one person is not going to do all of the cleaning, split the work. So we say,

22:12 okay, you take the room, you take the kitchen, you take the dining area and at the end of the day,

22:16 the whole task, which is the cleaning of the house, has been achieved. What we've done is by splitting

22:21 the work into component parts that people, different people will handle. Now, division of labor is

22:28 common in industrialized settings where one worker specializes in the production of a small portion

22:33 of the product rather than the whole product. So like we said, with division of labor, one person

22:39 doesn't have to do or create the entire product. It takes just one part of that process and handles it.

22:46 Now, okay, I already gave you examples, but here we have an example of the publishing industry.

22:51 So we have different stages. So there's writing, the typesetting, the editing,

22:56 filming and plating, printing, folding, collating, binding, and finally trimming.

23:02 We have these different processes are handled by different sets of people, not one person doing

23:06 from start to finish. So what are the advantages or sorry, okay, before we go on to advantages,

23:13 let's talk about specialization. So specialization is the concentration of productive efforts of an

23:19 individual, a firm or a country on a particular aspect of the production process. So I gave you an

23:24 example of cleaning the house and we said each person takes one part. So when we now begin to split

23:31 the work apart and one person is taking one portion of that work, that is specialization.

23:37 Or one person continuously over and over takes that particular portion of that work, that is what we

23:42 refer to as specialization. So specialization is often based on comparative advantage. So who knows

23:47 how to do what best if you are the best or if you excel at shining floors. When you mop the floors,

23:55 they always like, like, sparkle. Most likely your siblings who want you to handle the mopping of

24:01 the floors, they don't clean. They say, okay, you come in and you mop the floors because you know how

24:05 to do it very well. So that's how specialization works because we look at comparative advantage.

24:10 What can you do best better than any other person? You handle that part. Whoever is best at washing or

24:15 doing the dishes and they're able to wash dishes and they're sparkly, no oil stains left over, that person

24:21 is most likely going to handle that portion of the work. So that's specialization. So I hope when

24:26 division of labor is when we break up the task into components units and assign it to different

24:32 people. Specialization is when is that process where the different people take on just one

24:38 portion or one component of the task and focus on it and do it over and over again. So they become

24:45 specialists. Now advantages of division of labor. So the first advantage is increasing productivity.

24:51 So if still sticking with the cleaning of the house and example, if one person wants to clean the

24:56 house, you could take them, let's say six hours, eight hours to clean the house thoroughly from beginning

25:01 to the end. You could take them as much as six eight hours or six hours. But if we split the work apart,

25:07 we could be done in an hour. We could be done in 10 minutes, 45 minutes, depending on how much work

25:11 is there to be done. So division of labor increases productivity. And oh, sorry, I just

25:18 talk about time saving productivity. Meaning that we're able to do more using less resources or

25:24 using less time. And then time saving we're able to do things faster. So what would have taken us

25:29 eaters or accomplish or one person eaters to accomplish would take all of us say one hour or 45 minutes

25:36 as a case may be. Now division of labor also leads to the development of great ask you. So we talked

25:41 about specialization when one person does one part of the work and they continue to drop out of work,

25:46 then they can develop, they come from specialists in that rule. And also they will not be able to do

25:51 a real faster. They can do that will better. Another of that. Now division of labor also leads to

25:59 lower unit costs. So the cost of carrying out the task or the cost of production can reduce

26:05 when we divide the work as opposed to when one person is doing it's above the unit cost can

26:11 actually drop when we do because now since one person is doing it, the resources and other

26:18 persons is a specialist. Business is really right. We're not wasting resources. Business is really

26:22 fast. We're not spending more resources than we should be using. So we can actually drop the

26:27 cost of production when we have a good division of labor. Now we say division of labor makes for

26:33 greater use of machinery. So when the rules become really specialized, we can now develop

26:39 equipment or machines that will carry on those rules and then those persons run the machines

26:44 that we can do. It makes it when we divide the work, when we do division of labor, it makes it

26:49 easy for us to introduce machinery into the process. And then disadvantages of division of labor.

26:57 So the first one is monotonous work. Now when we divide labor, we talked about specialization,

27:02 which is good on some level. But it also means that people are going to be doing the same thing

27:07 over and again, over and again. So monotonous work, they are doing the same thing, day in day out.

27:14 Greater risk of unemployment. That is also on advantage of the difference. Greater risk of

27:21 unemployment, this one comes about because because people announce specialists, they can no longer

27:27 function outside. That is all they know how to do. So if they lose their job on that rule,

27:35 they can easily become unemployed, they get kicked out of the labor market. Also decline in

27:41 craft. When rules become very specialized and we are doing, I'm start using or introducing

27:46 machinery, then people don't really have to, nobody knows the entire craft from start to finish

27:53 because one person is handling one portion of that craft or one person of that process.

27:57 So nobody is that much of a craftsman anymore because a craftsman for you to be a craftsman,

28:02 you must be able to do or take the products from zero to the end from start to finish, you must

28:07 be able to produce it. When we split up the work, you only know how to do one portion of it. So you

28:11 are not much of a craftsman anymore. So the vision of labor with this is craftsmanship. It also

28:16 brings about standardized products. So when we divide the labor, we are able to do things faster.

28:21 And so we are able to create more products. Then we have like an assembly line and we are ruling

28:26 our products. So we are not, the vision of labor doesn't really care or make room for for

28:32 variety or to attend to people's personalities because now we're trying to make as much as we can

28:37 in the shortest time possible. So we have very standardized products and that's why you could

28:41 have a t-shirt in the same color, same shapes, same size, same everything and you have like a million

28:47 pieces of it because the labor was divided and it was done very fast. And then the vision of labor

28:52 also brings about extreme interdependence. So we said we split up the work process, the work flu,

28:58 and one person takes each portion. So that person becomes a specialist. So the data person is not

29:03 around. We are all in trouble because that person's workload is left hanging. And until that person

29:09 can do their work, we cannot take, like we can't complete the production process. So it brings about

29:14 extreme interdependence. Now we move on to scale of production. So scale of production can be defined

29:23 as the growth of a firm or an industry as a result of the expansion of the volume of productive

29:30 capacity resulting in the increase of outputs and the decrease in the cost of production. What does

29:36 this mean? Scale of production is growth of when when when a firm on industry is able to increase

29:44 how much it's producing, which now leads to because it's producing more and it has started producing more,

29:52 we can now increase the output. And since we're producing more, you need to cost can drop that

29:57 scale of production. When the firm grows because or when the firm expands because it can produce more

30:04 or it's now producing more, thereby reducing the cost of production. We cannot is also referred to

30:10 as economies of scale. So when you see the term economies of scale, it just know that we're talking

30:15 about scale of production. Now there are types of economies of scale. There are two types. You have

30:22 the internal economies and internal this economies and the external economies and the external

30:29 these economies. So those are the two types of economies of scale, internal and external both

30:34 internal, both of them cover the economies and the external economies. So think of the economies as

30:39 sort of advantages because so we when we define we say the we'll get to that point but think of

30:47 economies as advantages and think of these economies as disadvantages. So what is internal economies

30:53 and this economies. Internal economies refers to the advantages like I said which a firm derives

31:00 as a result of an increase in its size and expansion of its output that is increase as a result

31:07 of its own effort. So internal economies means that this the the industry or the firm has expanded

31:13 because of things that it has done on the inside. So it can increase is increasing size leads to

31:21 greater efficiency because it has increased in size is now been efficient units cost can drop.

31:27 These advantages been enjoyed by this firm could come from financial managerial or technical

31:33 large scale production which takes place within the firm. So I said think of economies as advantages.

31:40 Now when we say internal economies we're talking about internal advantage so anything that

31:44 the firm does on the inside within its organizational structure that brings about an expansion which

31:51 leads to increasing outputs and reduction in price that is an internal economy. An internal

31:58 this economy on the other hand is the disadvantage which arises from expansion or the things that

32:05 so we said whatever the firm does on the inside that brings about an increased outputs and

32:10 if all in units pricing or units costs rather that is an internal economies. So whatever they do

32:17 on the inside that brings about the disadvantage to them so maybe they can produce efficiently and

32:22 the unit costs are going up then that is an internal disadvantage of this economy because it's

32:27 something that they do on the inside that brought them to that point of disadvantage. Now external

32:33 economies external economies and external disadvantage of economies is the opposite of internal

32:40 economies. So the things that happen on the outside of the firm that brings about an increase in the

32:45 size of the firm and increasing the outputs and reduction in cost. Whatever happens on the outside

32:52 of the firm that is advantageous to the firm or the industry and helps it to grow, helps it to

32:58 increase its output, helps it to cost price those that is what we refer to as external economies.

33:05 External disadvantage of economies is the things that happen on the outside that are disadvantages to

33:10 the firm or the industry. So those things that happen on the outside that cause efficiencies to drop

33:15 within the firm and cost units costs or outputs to drop and then units costs going high. Those are

33:24 external economies, these economies. So internal the things that happen on the inside that brings about

33:30 goods that is internal economies. The things that happen on the inside that brings about, what would

33:36 I call it now, a shortfall to that internal, these economies. The things that happen on the outside

33:42 that brings about goods to the industry or the firm, those are external economies and then the things

33:47 that happen on the outside that are not of advantage or that cripple the business or the firm or

33:53 the industry. Those are external economies. So external economies, okay, we've done that already.

34:02 One or more disadvantage of the firm experiences when the activities of one or more industries

34:10 increase the cost of production or outputs at that firm within the same location. So the things

34:15 that happen outside that are beyond the firm's control, things that the firm cannot manipulate

34:21 that now end up affecting its own productivity and its goods, those are external economies.

34:26 Now I want you to, this is more of an assignment, read up because we talked about, as we said,

34:34 that the internal economies are things that the firm does on the inside that affects its goods.

34:41 So what are those things or what are their categorizations? So I want you to go and read up

34:46 classification of internal economies of scale. What are those things that the firms can do on the inside

34:51 or the industry can do on the inside that will bring about the economies of scale? And then I want

34:56 you to read up on the advantages and disadvantages of large scale production, which is economies of

35:01 scale, and then the disadvantages or the advantages and disadvantages of external economies of scale.

35:09 So that will all of our lessons for theory of production. Till next lesson. Bye.