Economics 3

Field Study Report Economic Analysis (522)
1. INTRODUCTION
In this Field Study Report, I have discussed about the Theory of I
Production and their applicability in the business organization. For N
T
this purpose I have visited and studied the functions relating to my R
topic of Attock Refinery Limited. O
D
U
C
T
2. THEORY OF PRODUCTION I
O
N
2.1 CONTENTS
In the theory of production, we study about the

production and its four factors which are complementary
in the sense that their cooperation or combination is
essential in the production process. These are (i) Land:
its meaning, importance and peculiarities; (ii) Labour:
meaning, peculiarities, factors determining its efficiency
and division; (iii) Capital: its meaning and importance,
formation, importance and sources of formation; and (iv)
Enterprise: Entrepreneur’s role, types of enterprises.
2.2 IMPORTANCE
Production of goods relates to supply side and discuss the
relation between inputs and output. Production in
economics is generally understood as the transformation
of inputs into outputs. The inputs are what a firm buys
(i.e., productive resources) and outputs (i.e., goods and
services produced) what it sells. In economic analysis we
restrict the use of the term “production” to the production
of goods only, because in the production of goods we can
precisely specify the inputs and also identify the quantity
and quality of outputs. A firm seeks to produce that level
of output at which its profits are maximum.
Theory of Production by Ejaz Alam Khan H 5279752# 1
2.3 MEANING OF PRODUCTION
Production is sometimes defined as the creation of utility
or the creation of wantsatisfying goods and services. But
this is not a scientifically correct definition. To produce a
thing which has utility but not value is not production in
the economic sense. One may spread the cult of Yoga and
promote the physical and spiritual wellbeing of one’s
friends a thing of great utility but unless one makes it
one’s profession, his activity will not come under
production. Production, therefore, should be defined, not
as creation of utility, but creation (or addition) of value.
Production essentially means transformation of one set of
goods into another.
3. FACTORS OF PRODUCTION
Productive resources required to produce a given product are

called factors of productions. These productive resources may
be raw materials or services of the various categories of workers
or of capitalists supplying capital or of entrepreneurs
assembling the factors and organizing the work of production.
They are now generally called “inputs”. The factors of
production have been traditionally classified as Land, Labour,
Capital and Organization (or Enterprise). But the modern
economists prefer to talk in terms of anonymous productive
services. The four factors are complementary in the sense that
their cooperation or combination is essential in the production
process. Now I shall briefly deal with them one by one.
3.1 LAND: MEANING AND IMPORTANCE
The term “land” has been given a special meaning in

Economics. In the words of Marshall, land means “the
materials and the forces which nature gives freely for
man’s aid, in land and water, in air and light and heat.
Lands stand for all natural resources which yield an
income or which have exchange value. It represents those
natural resources which are useful and scarce, actually or
potentially.
3.2 PECULIARITIES OF LAND
• Land is nature’s gift to man.
• Land is fixed in quantity.
• Land is permanent.
• Lands lack mobility in the geographical sense.
• Lands provide infinite variation of degrees of fertility

and situation so that no two pieces of land are exactly
alike.
3.3 LABOUR: MEANING OF LABOUR:
In ordinary speech, labour means mass of unskilled

labour. But in economics it is used in a wider sense. Any
work, whether manual or mental, which is undertaken for
a monetary consideration, is called “labour” Any work
done for the sake of pleasure or love does not fall under
labour in the economic sense. In Marshall’s words, “Any
exertion of mind or body undergone party or wholly with
a view to some good other than the pleasure derived
directly from the work, is called “labour”.
3.4 PECULIARITIES OF LABOUR
Labour is manifestly different from the other factors of

production. It is a living thing, and that makes all the
difference. Labour is not only a means of production but
also an end of production.
• Labour is inseparable from the labourer himself.
• Labour does not last. It is perishable i.e., has no

reserve price.
• Labour has a very weak bargaining power.
• Changes in the price of labour react rather curiously
on its supply.
• There can be no rapid adjustment of the supply of

labour to demand for it.
3.5 FACTORS DETERMINING EFFICIENCY OF LABOUR
The following are some of the main factors which affect
labour efficiency:
• Racial qualities Labour efficiency largely depends on
heredity and the racial stock to which a worker
belongs.
• Climatic Factors. A cool bracing climate is conducive
to hard work, whereas the tropical climate is
enervating.
• Education. Efficiency also depends on education, both
general and technical.
• Personal qualities. A worker’s efficiency also depends
upon his personal qualities, e.g. physique, mental
alertness, intelligence, resourcefulness and initiative,
etc.
• Industrial organization and equipment. The level of

organization and the nature of equipment supplied to
the workers, too, determine their efficiency.
• Factory Environments. Cramped and illventilated

factories, situated in crowded and insanitary
surroundings, are not conducive to efficiency.
• Working Hours. Long hours impair labour efficiency.
• Fair and prompt payment. A well paid worker is

generally contented and puts his heart into the job.
• Organization. An organized efforts is always more

effective.
• Social and Political Factors. Social security schemes
guaranteeing freedom from want and fear, and which
remove the dread of unemployment that always hangs
over their head.
3.6 DIVISION OF LABOUR
Division of labour is an important characteristic of

modern production. In fact, there is hardly any
producing unit of a respectable size which does not
organize production on the basis of division of labour.
Division of labour is associated with efficiency of
production. The division of labour is not a quaint
practice of eighteenth century in factories; it is a
fundamental principle of economic organization. When
making of an article is split up into several processes and
each process is entrusted to a separate set of workers, it
is called division of labour.
SIMPLE DIVISION OF LABOUR. This means division of society

into major occupations, e.g. carpenters, blacksmiths,
weavers, etc. It may also be called function division of
labour.
COMPLEX DIVISION OF LABOUR. In this case, no group of

workers makes a complete article. Instead, the making of
an article is split up into a number of processes and sub
processes and each process or subprocess is carried out
by a separate group of people. This is division of labour
proper.
TERRITORIAL DIVISION OF LABOUR. This form of division of

labour refers to certain localities, cities or towns
specializing in the production of some commodity. This is
also called localization of industries.
3.7 CAPITAL
Capital refers to that part of a man’s wealth which is used
in producing further wealth or which yields an income.
But capital is not a primary or original factor of
production. It is a produced means of production.
Capital is manmade or is a ‘produced agent’ of
production. It is perishable and mobile. The amount of

capital can be increased and income from capital is
uniform.
3.8 IMPORTANCE OF CAPITAL
Capital Plays a vital role in the modern productive

system. Production without capital is hard for us even to
imagine. Nature cannot furnish goods and materials to
man unless he has the tools and machines for mining,
farming, foresting, fishing, etc. Because of its strategic
role in raising productivity, capital occupies a central
position in the process of economic development. In fact,
capital formation is the very core of economic
development.
Another important economic role of capital formation is

the creation of employment opportunities in the country.
Capital formation creates employment at two stages.
First, when the capital is produced some workers have to
be employed to make capital goods like machinery,
factories, dams, irrigation works, etc. Secondly, more
men have to be employed when capital has to be used for
producing further goods.
3.9 CAPITAL FORMATION
Capital formation means the increase in the stock of real
capital in a country. In other words, capital formation
involves making of more capital goods such as machines,
tools, factories, transport equipment, materials,
electricity, etc. For making additions to the stock of
capital, savings and investments are essential.
3.10 IMPORTANCE AND SOURCES OF CAPITAL FORMATION
Capital accumulation is the very core of economic
development. It may be a predominantly private

enterprise system like the American, or a communistic
economy like the China, economic development cannot
take place without capital accumulation. No economic
development is possible without the construction of
irrigation works, the production of agricultural tools and
implements, land reclamation, building of dams, bridges
and factories with machines installed in them, roads,
railways, and airports, ships and harbors all the
produced mans of further production associated with
high levels of productivity. It seems unquestionable that
the insufficiency of capital accumulation is the most
serious limiting factor in underdeveloped countries. In
the view of many economists, capital formation occupies
the central and strategic position in the process of
economic development.
3.11 ENTERPRISE
The fourth factor of production is enterprise which is

supplied by the entrepreneur.
3.12 ENTREPRENEUR’S ROLE
The role that the entrepreneur plays consists in co

ordinating and correlating the other factors of production.
He starts the work, organizes and supervises it. He
undertakes to remunerate all the factors of production:
to pay rent to the landlord, and pays them in advance of
the sale of goods. The residue, if any, is his. Nothing may
be left after he had made the necessary payments. In
that case, his venture will have been miscarried. But it is
also possible that he may be lucky to make a handsome
profit. Whatever may be the outcome, he must be
prepared to accept it. He thus takes the final
responsibility of the business.
3.13 TYPES OF ENTERPRISES.
There are commonly three types of enterprises:
3.14 SOLE PROPRIETORSHIP
A sole proprietorship is owned and managed by a single
man. he alone is responsible for the success or failure of
his business. Sole proprietorship is generally found in
small business and generally large scale production units
cannot be established as sole proprietorship. This form of
business is suitable where only one person can manage
the whole affairs of it, but it is not suitable, where more
managerial ability, more capital, and more supervision
are required and where the optimum size of the
production units is rather large:
3.15 CHARACTERISTICS:
• Owned and operated by one man.
• Necessary capital is provided by the proprietor.
• Proprietor has unlimited for all the debts of his

business.
• There is no legal formality to start a sole trading

business.
• The profits and losses are shared by proprietor only.
3.16 PARTNERSHIP
With the expansion of business, it necessitates a

combination of money, skill, and working experience.
Thus two or more person may join hands with a view to
carrying on a business together and share the profits
derived therefrom, thereby avoiding the limitations of
doing business by a person alone, namely lack of capital
and inadequate managerial capabilities, etc. The
partnership is a relationship between persons who have
agreed to share the profits or losses of a business carried
on by all or any of them acting for all. According to the
law there cannot be more than 10 partners in a banking
business and more than 20 partners in any other
business. For those professions, however which are
debarred from doing business in the form of a limited
company, such as the physicians, attorneys and the
accountants, the maximum limit does not apply.
3.17 CHARACTERISTICS:
• Limited life dissolved due to variety of causes such
as, death, insolvency, or becoming of unsound mind of
a partner, the happening of an event which makes it
unlawful for the business to be carried on, or partner
giving a notice of his intention to leave the firm, etc.
• Unlimited liability jointly or severally liable to

creditors for debts.
• Coownership of investment/property investment and
property are jointly.
• Partnership agreement arises out of an agreement

between the partners.
3.18 JOINT STOCK COMPANY (CORPORATION)
With the rapid growth of trade, commerce and industry,
the size of business houses began to increase and the
sole proprietorships and partnership found themselves
unable to supply all the capital needed. Therefore, a new
form of business organization came into existence where
public was invited to contribute capital. This form of
business is known as Joint Stock Company. In USA and
Canada, it is known as corporation.
3.19 Type of Companies:
• Company limited by shares, in which the liability of its
members is limited to the extent of the amount of their
shares. There is two type of companies limited by
shares (i) Private Limited Company which restrict the
right to transfer shares, prohibit any invitation to the
public to subscribe for their shares and minimum
number of their shareholders can be to while the
maximum number can be 50. (ii) Public Limited
Company those companies to whom none of the
restrictions of a private company apply. The minimum
number of shareholders of this type of companies can
be seven while there is no limited about the maximum
number.
• Company limited by Guarantee is one in which each

members gives a guarantee to contribute a specified
sum to the company in the event of its being wound
up. Companies in this class are usually associations
not for profit making.
• Unlimited company is one in which the liability of a

shareholders is unlimited as in an ordinary
partnership. If the partners of a firm does not want to
establish a company limited by shares and the number
of its partners are going to increase to the maximum
limit of 10 or 20, they can form an unlimited company.
4. ANALYSIS OF THE ORGANIZATION IN LIGHT OF THE

SUBJECT TOPIC
4.1 ORGANIZATION
Attock Refinery Limited was incorporated in Pakistan as
a private limited company on November 8, 1978 and was
converted into a public limited company on June 26,
1979. Attock Refinery Limited is also listed on the three
stock exchanges of Pakistan and its shares are traded
there. The company is principally engaged in refining of
crude oil. Attock Oil Company, incorporated in England,
is the holding company of Attock Refinery Limited. The
company is situated in Morgah, Rawalpindi.
4.2 BOARD OF DIRECTORS
The Board of Directors of the company consists of one
Chairman and seven directors.
4.3 SHAREHOLDING:
The capital of the company is divided into shares of Rs.
10/ each and held in the following manner:
Shareholders No. Shares held %
Joint Stock Companies 6 12,308,327 54.70

Investment Companies 2 2,097,501 9.32
President, Pakistan 1 7,875,000 35.00
Insurance Companies 2 28,319 0.13
Individuals 392 190,853 0.85
We can see also the shareholders division in the following pie
chart.
4.4 ORGANIZATIONAL STRUCTURE
4.5 CAPITAL
The company’s paid up capital was increased from
Rs. 187.50 million to Rs. 225 million through
capitalization of an amount of Rs. 37.5 million, out
of the profits of the company by way of issue of fully
paid bonus shares to the members of the company
in the proportion of one new share for every five
shares held. The company has also in Reserves
amounting to Rs. 272.08 million (235 million in
1997)
4.6 LAND
The company has free hold land of Rs.2.2 million on
which it has installed its plan and machinery and
constructed office buildings, roads, parks, clubs,
residences, etc.
4.7 LABOUR
There are total 608 number of workforce doing
mental, physical or manual jobs in the company.
4.8 DIVISION OF LABOUR
The division of workforce in the company is as
under:
Executives 34
Chief Executive 1
Managers 5
Assistant Managers 5
Executive Officers/Officers 23
Workers 574
Grade 1 & 2
General Worker, Gardener, Helper

Peon, etc.
Grade 3 & 4
Blacksmiths Jr., Carpenter, Cook,

Mechanic Jr., Mason, Welder, Fitter,
Despatch Rider, etc.
Grade 5
Blacksmith, Mate, Oil Movement

Operative, Switch Board Operator,
etc.
Grade 6
Armature Winder, Driver, Plant

Attendant, Turbine Operator,
Mechanic.
Grade 7 & 8
Assistant Plant Operator, Assistant
Foreman, Assistant Supervisor,
Surveyor.
Grade 9
Draughts man, Supervisor,

Foreman, Plant Operator Incharge,
Shift Engineer.
Office Staff:
Grade C1
Clerk, Typist Jr. etc.
Grade C2
Patwari, Typist, etc.
Grade C3
Clerk Sr., Office Assistant, etc.
Grade C4
Asstt. Supervisor, Stenotypist
Grade C5
Supervisor, Stenographer
Grade 6
Supervisor Sr., Personal Assistant
4.9 PRODUCTION
The four factors of this organization with co

operation or combination is producing production
in a year in comparison with previous year in the
following manner:
PRODUCTION
(M. Tons in thousand)
Product 1998 1997
Motor Spirit 320.0 280.0

Gas Oil 210.0 198.0
Kerosene 98.0 100.0
Asphalt 81.0 80.9
Furnace Fuel/others 370.0 290.0
[Crude oil consumed this year 1090 (980 in 1997)]
5. CONCLUSION
• The nameplate refining capacity of the company is

10,065,000 barrels (1.330 million M.Tons) total through put
of the refinery during the year. The company’s refining
capacity continued to be under utilized due to non
availability of indigenous crude oil. The entire indigenous
crude production from the Northern Region was processed at
the Refinery.
At this scenario to conserve the foreign exchange, the

company should utilize its full production capacity as we
have sufficient crude oil in southern region.
• The company is overstaffed as compared to staff position in
other refineries. So the management decided not to recruit
workers for some time and for right sizing they launched a
scheme of “Voluntarily Separation from Service”.
Therefore, at this stage the workers should involve

themselves in work with zeal, devotion and confidence.

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Field Study Report Economic Analysis (522)

In the theory of production, we study about the

Productive resources required to produce a given product are

The term “land” has been given a special meaning in

• Lands provide infinite variation of degrees of fertility

In ordinary speech, labour means mass of unskilled

Labour is manifestly different from the other factors of

• Labour does not last. It is perishable i.e., has no

• There can be no rapid adjustment of the supply of

• Industrial organization and equipment. The level of

• Factory Environments. Cramped and ill­ventilated

• Fair and prompt payment. A well paid worker is

• Organization. An organized efforts is always more

Division of labour is an important characteristic of

SIMPLE DIVISION OF LABOUR.­ This means division of society

COMPLEX DIVISION OF LABOUR. ­ In this case, no group of

TERRITORIAL DIVISION OF LABOUR.­ This form of division of

production. It is perishable and mobile. The amount of

Capital Plays a vital role in the modern productive

Another important economic role of capital formation is

Capital accumulation is the very core of economic

development. It may be a predominantly private

The fourth factor of production is enterprise which is

The role that the entrepreneur plays consists in co­

• Proprietor has unlimited for all the debts of his

• There is no legal formality to start a sole trading

With the expansion of business, it necessitates a

• Unlimited liability ­ jointly or severally liable to

• Partnership agreement ­ arises out of an agreement

• Company limited by Guarantee is one in which each

• Unlimited company is one in which the liability of a

4. ANALYSIS OF THE ORGANIZATION IN LIGHT OF THE

converted into a public limited company on June 26,

stock exchanges of Pakistan and its shares are traded

The Board of Directors of the company consists of one

Shareholders No. Shares held %

Joint Stock Companies 6 12,308,327 54.70

Rs. 187.50 million to Rs. 225 million through

in the proportion of one new share for every five

shares held. The company has also in Reserves

amounting to Rs. 272.08 million (235 million in

constructed office buildings, roads, parks, clubs,

There are total 608 number of workforce doing

The division of workforce in the company is as

General Worker, Gardener, Helper

Blacksmiths Jr., Carpenter, Cook,

Blacksmith, Mate, Oil Movement

Armature Winder, Driver, Plant

Draughts man, Supervisor,

The four factors of this organization with co­

Product 1998 1997

Motor Spirit 320.0 280.0

• The nameplate refining capacity of the company is

At this scenario to conserve the foreign exchange, the

Therefore, at this stage the workers should involve

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• Factory Environments. Cramped and illventilated

SIMPLE DIVISION OF LABOUR. This means division of society

COMPLEX DIVISION OF LABOUR. In this case, no group of

TERRITORIAL DIVISION OF LABOUR. This form of division of

The role that the entrepreneur plays consists in co

• Unlimited liability jointly or severally liable to

• Partnership agreement arises out of an agreement

The four factors of this organization with co