DEFINITION OF FIRM, PLANT AND INDUSTRY FIRM

FIRM

The firm is an independently administered business unit carrying out production, construction, or distribution activities. Examples of firms in Nigeria are Dangote Cement, Cadbury Nigeria Plc.

PLANT

This is the same as the factory. It consists of the tools, equipment, machines and buildings of a business concern. It is a business establishment or the actual place where production is organized. E.g. Aladja steel plant, etc.

INDUSTRY

An industry consists of a group of firms producing broadly similar commodities. Examples are the shoe industry, the transport industry, the cement industry, etc.

FACTORS THAT DETERMINE THE SIZE OF A FIRM

Capital Available
Size of the market
Ability of the entrepreneur
Availability of raw material
Level of technology
Efficiency of management
Policy of the government
Nature of the product
Stage of development

CONCEPT OF TOTAL PRODUCT (TP), AVERAGE PRODUCT (AP) AND MARGINAL PRODUCT (MP)

TOTAL PRODUCT (TP): Total product refers to the total quantity of goods produced at a particular time as a result of the use of all the factors of production.

Point of diminishing returns

total

output Total product

0 unit of labour

Symbolically written as TP = AP X Q

AVERAGE PRODUCT (AP): Average product is defined as the output per unit of the variable factor (labour or capital) employed. This is obtained by dividing the total output by the number of labour or capital employed.

Unit of Labour X

AP=TP/Q

MAGINAL PRODUCT (MP): This is the additional product produced as a result of the application of additional unit of a variable factor when all other factors are fixed.

Unit of Labour X

Symbolically written as MP = CHANGE IN TP/CHANGE IN VARIABLE FACTOR =

TP₁ – TP_O

Q₁ –Q_O

TOTAL PRODUCT, AVERAGE PRODUCT AND MARGINAL PRODUCT

VARIABLE UNIT FIXED FACTOR TOTAL PRODUCT AVERAGE PRODUCT MARGINAL PRODUCT

OF LABOUR hectares of land (Kg) (Kg) (kg)

1 3 8 8 ……

2 3 18 9 10

3 3 36 12 18

4 3 48 12 12

5 3 55 11 7

6 3 60 10 5

7 3 60 86 0

8 3 56 7 -4

RELATIONSHIP BETWEEN TOTAL PRODUCT, AVERAGE PRODUCT AND MARGINAL PRODUCT.

The relationship between total products, average product and marginal product can be demonstrated by a graph. Both TP and MP initially rise. The TP curve remains at maximum point when MP is zero. TP declines after MP = 0 and MP afterwards assumes negative values.

QUESTIONS

Write short note on (a) firm (b) plant (c) industry

Tonnes of fertilizer applied total product in bags marginal product

0 1000 …….

1 1100 100

2 1250 150

3 1500 250

4 …….. 400

5 …….. 250

6 ……. 125

7 2350 ……..

8 2380 ……..

9 2330 ……..

What will be the total output of maize when no fertilizer is applied to the land? (2b) Calculate the total product after the application of the following quantities of fertilizer (i) 4 tonnes (ii) 5 tonnes (iii) 6 tonnes (c) calculate the marginal product after the application of the following quantities of fertilizer (i) 7 tonnes (ii) 8 tonnes (iii) 9 tonnes.