UNIT VI - ORGANIZATION OF THE FACTORS OF PRODUCTION

Production refers to the creation of goods and services. The purpose of production is to provide people with the
goods and services that they need or want to consume.

PRODUCTION LEVELS/LEVELS OF PRODUCTION

Production operates at three basic levels.

(A) Subsistence
(B) Domestic
(C) Surplus

A. Subsistence Production

This method of producing goods allows for only the basic needs of human beings (food, shelter, clothing) to be
satisfied. Agriculture is the main activity at this level. The quality of life of people at this level is hardly improved.

Advantages of Subsistence Production

1. People in the economy are self-sufficient

2. Wants are kept at a basic level and resources are economised with much left over for further development
3 Surpluses are exchange through barter

Disadvantages of Subsistence Production

1. Natural disaster such as floods and hurricanes can cause severe hardship
2. The country is isolated from others because of self sufficiency.

B. Domestic Production

Involves the production of goods and services not only for oneself, family or community but also for the local
market. This level does not involve any imports from foreign countries. Both human (although foreign labour
/expertise may be brought in to achieve higher production) and natural resources are employed and the
economy is dependent upon what it can produce from these resources. The farmer raises more than he needs
of the type of crops, sells the surplus and buys what he needs with the money earned.

Advantages of Domestic Production

1. A lot of internal trading activities take place

2 Employment is provided and thus income is generated
3. Resources are fully utilised
4. The country is self sufficient and saves foreign exchange

Disadvantages of Domestic Production

1. Not all goods and services are available locally and therefore consumer choice is limited.
2. This country does not benefit from international trade

C. Surplus/Export Production

This level refers to domestic production that has exceeded domestic need, so that there is now enough surplus
to export.
Advantages of Surplus Production

1. A country earns well needed foreign currency to pay for it imports.

2. Expansion of industries mean advantages to be gained from large scale production
3. Employment opportunities are greatly enhanced
4. Meaningful relationships are developed between countries.

Disadvantage of Surplus Production

1. Trade must be arranged with other countries. To import, therefore, involves the use of foreign currency, which
might be scarce.

TYPES OF PRODUCTIVE ACTIVITIES

1. Primary or extractive industries

2. Secondary - Manufacturing and construction industries
3. Tertiary - Service industries

1. Primary Production

Is concerned with the extraction of basic materials provided by nature, which are either above or below the earth.
The extractive industries are agriculture (farming), mining, fishing, and forestry.

Primary Products of the Caribbean Primary Products of more developed countries

Agriculture Forestry Mining Agriculture Forestry Mining

Sugar cane Lumber Bauxite ore wheat copper

Yam gold oats timber Iron
Bananas oil barley Zinc
Cocoa corn tin
Dasheen soybean nickel
Coffee potatoes
Spices fruits
fruits

2. Secondary Production

consist of the manufacturing and construction industries. Manufacturing industries take raw materials (obtain
by the extractive industries) and change them into commodities which can be of use to man. E.g .aluminium
converted into pots and pans, cotton is change in fabric, oil into petroleum products. In the manufacturing
sector, not all goods are produced from scratch, some are assembled e.g. electronics.

Construction industries use mainly manufactured products. E.g. cement made from limestone and clay
(primary products) is used in the construction of building, asphalt ( a by-products of oil) is used with limestone
and clay (marl).

The assembly of prefabricated materials is becoming popular in the construction industry. Prefabricated
means that parts of the products are produced in factories and then assembled. Through this method,
houses, aeroplanes, bridges etc are easily assembled on site from the parts obtained from manufacturing
plants.

In the garment industry, materials for the construction of garment come from raw materials such as cotton, oil
based materials etc.
2. Tertiary Production
Is sometimes called services industry, but more often it is referred to commerce and direct services.

Commerce can be divided into 2 area

(a) trade
(b) services to trade

Trade - buying and selling of goods in order to change the ownership. Trade can be done locally or foreign.
Services to trade - assist in the buying and selling of goods e.g. banking, finance, insurance, transport,
communication, advertising.

Direct Services - are the activities provided by people who do not change the ownership of goods, but which are
essential to the well being of the community. E.g. tourism, nursing, teaching, dentistry, acting.

INSERT PAGE FOR INDUSTRIES HERE

UNIT VI CONT'D

Linkage Industries/Industrial Linkages

Are industries that are connected/linked to each other in that the finished products of one industry become the raw
material of another industry. E.g. Rum industries depend on molasses in order to produce them. Tourism in the
Caribbean depends on entertainment, agriculture, and handicraft, hotel and transport industries. Other names for
linkage industries are 'spin-off' or 'screwdriver' industries because it has come about as a result of some other
development. e.g. canning and preservation of food are 'spin-offs' of agriculture.

EXAMPLES OF LINKAGEINDUSTRIES

1. Agriculture and canning

2. Agriculture and Tourism
3. Rum industry linked to sugar
4. Beverage and candy making linked to sugar
5. Lumber and furniture
6. Plastic and Petro-chemical linked to oil industry
7. Tourism and Handicraft
8. Bauxite mining and Aluminium Products
9. Road building industry linked with asphalt.
(LIST HAS NOT BEEN EXHAUSTED)

TYPES OF LINKAGE INDUSTRIES

(1) Forward
(2) Backward

Forward Linkage

Occurs where an industry produces the raw materials for another industry. E.g.1 mining of sand and limestone
links forward to the construction industry 2. Producers of gas link forward to the distributor 3. Dairy industry
sells its output to the ice cream factory and the ice cream factory sells to restaurants.

Backward Linkage

Occurs where a firm or industry is established because it obtains its raw materials from an already establish firm or
industry. E.g. the production of dairy products depends on the agricultural industry. The agricultural
industry in turn depends on feed mills to provide feed for the cow.

Importance of Linkage Industries in the Caribbean at both National and Regional Levels

1. They provide increase employment and an improved standard of living.

2. Producers are sure of the movement of their products i.e. there is an outlet for the product.
3. Foreign exchange is earned by the exported goods of linkage industries.
4. Resources are more efficiently used.
5. They promote innovation and the capacity for new technology. This will allow the region to be able to compete
in the global market place in the long run.
6. Linkage can contribute to a more skill labour force
7. Linkage industries lead to increase in production, thus causing Gross Domestic Product of countries to increase.
8. Specialization can develop in some countries out of the growth of linkage industries. E.g. rum production grew
out of the sugar production.
9. Industries which are linked ensure the survival of weaker industries. This enhances self-reliance of the country
and provides more employment.
10. The growth and development of linkage industries helps economies to diversify in economic hardship.

NOTE Do further reading on the opportunities for and benefits of developing linkages among communities and
Caribbean countries Essentials POB for CXC Sybile Hamil and Alan Whitcomb
POB for CXC Abiraj
Problems of Industrial Linkage

1. Shortage of capital to extract materials, start manufacturing and carry out successful export marketing. E.g. in
Jamaica and Guyana are bauxite suppliers. However investors in these countries have not taken the process
beyond the aluminium stage because of the lack of resources. Therefore country have had to forego the benefits
of bauxite production at the advanced levels.

2. Heavy machinery is expensive to buy and set up.

3. Access to foreign market is not guaranteed.

4. Availability of raw materials in some cases is limited.

Role of Government in the Development of Linkage Industries

1. Provide education for citizens whereby thy are encouraged to purchase local goods instead of foreign made
products. Buying locally is a means of ensuring that these industries remain viable. In addition local producers
must improve the quality and quantity of their products to compete with similar imported items.

2. Arrange trade fairs to make the public aware of the potential of small businesses.

3. Provide training centers to help to develop the skills of the people of the country.

4. To pool resources in order to obtain the capital needed by various industries.

LOCATION OF INDUSTRIES

1. Geographical/ Climate Condition

- certain agricultural goods are suited to particular climates and this must be taken into consideration before
any production can take place .

2. Availability/location of raw materials

- Nearness to the raw materials tends to reduce costs because the raw materials will not have to be
transported over long distances to the plant. E.g. it is best to locate a sugar factory near to the raw material
(sugar cane).

3. Location of the Market

- Some industries produce goods which cannot be transported over long distances. This is important
especially where products are perishable/fragile e.g. fruits, glass vegetables.
- Although industries have adopted new methods of storing and transporting goods, these items need to be
handled with care and should not take long time to get to the market.
- Industries must locate near to their market to save costs due to breakage and spoilage.
- The market location is important if the business to reach its target groups and potential customers.

4. Availability of Energy Sources

- A reliable supply of electricity is vital to the cost of production. Business owners should establish business
close to the source of energy.

5. Nearness to Transportation facilities (shipping, railways, airport )

- Most industries concentrate near to major highways so that it is easy to take raw materials to the factories
and their finished products to their customers. Closeness to rail sea and air transport is also important as
these links can save distribution cost or the movement of raw materials.

6. Nearness to Physical Infrastructure (Such as good roads, bridges, telephone, water supply)

7. Availability of adequate social infrastructure (schools, health facilities, recreational centers).

- These are important to location as workers may need to relocate near to the business and may require
these amenities.
8. Availability of Labour
- Skilled and available labour is a basic need of all industries. As labour will not travel long distances, firms tend
to locate near to their labour supply. This saves time and productivity that would otherwise be lost through late
arrivals of workers.

9. External Economies of Scale.

- These are benefits gain by firms or industries as a result of large-scale production. E.g. collective
advertising, cheaper maintenance services due to the concentration of firms in the same location.

10. Government Intervention (Incentives for locating a firm in a particular area).

- These are grants given to firms to encourage the location of their business in a particular area. E.g. firms
may be allowed to import raw materials duty if they are willing to locate their industries in the rural area.

11. Government Restrictions due to the nature of Industrial Activities

- In order to avoid social cost to the society e.g. pollution, certain industries that are located far from
residential areas and outside of the city.

REVIEW QUESTION
June 2001

1 (a) Identify FOUR factors that have influenced the location of industries in your country or any other CARICOM
country. (4 marks)

(b) Use an example from an identified industry, define any TWO of the following concepts:

(i) Industrial linkage

(ii) Forward linkage
(iii) Backward linkage (4 marks)

(c) Identify ONE industry in any CARICOM country that you believe is poorly located and explain
why you think the industry is poorly locate (2 marks)
UNIT VI CONT'D - ORGANIZATION OF THE FACTORS OF PRODUCTION

ECONOMIES OF SCALE: The Effects of the Growth of Firms and Industries

"Scale" refers to the scale of production.

Economies of Scale are the advantages/benefits (e.g. reduction of costs) gained from large-scale production

Types of Economies of Scale

(a) Internal economies of scale

(b) External economies of scale

A. Internal Economies of Scale

- refers to the benefits gained by one particular firm (industry).

Types of Internal economies of Scale

1. Technical economies of scale

This refers to the size of the plant, which the firm uses. Large equipment may be used when expansion occurs
and these are usually more efficient than smaller ones as it (large equipment) produces more in less time and at
cheaper costs. It also allows a firm to allocate more resources to research and development, which can result in
even larger-scale production.

2. Managerial economies of scale/specialisation of Labour

Increase scale of operation allows for division of labour or specialisation. This means the recruitment or training
of people in specialised skills and tasks. The use of highly skilled and specialised managers allows for greater
organization and control as well as increase efficiency of operations. The firm cal also put different managers in
charge of certain divisions such as ales, Accounts, Production, Purchasing Personnel etc.

3. Financial Economies of Scale

Larger firms may have easier access to loans for expansion than small firms, because they own more assets
(collateral) and they are more able to withstand financial pressures. They also have an established reputation
and can sell shares and debentures. Not only banks feel safer to lend money to large firms, but creditors feel
more confident in giving trade credit to large firms than to small ones.

4 Marketing/Purchasing Economies of scale

Large operations mean large quantities of output. As a result of this, goods are often mass produce.
Therefore buying raw materials in bulk becomes necessary. Bulk buying attracts discounts and discounts reduce
the cost of the raw materials. Cheaper raw materials means reduced production cost. When production cost is
low goods can go on the market at a cheaper price. At a cheaper price consumers demand more goods. The
more goods are demanded, the more income the firm will receive.

The firm is also in a better position to invest in public relations, Market research and advertising as well as
building a good reputation with its communities by contributing to community efforts.

5. Research and Development economies of Scale

This facilitates the innovation and development of new products and ideas. This helps a firm to deal with
changing market demand and to compete better.
6. Risk bearing economies of Scale

refers to the diversification of production or the addition of a new product. Larger firms have the ability to
spread risk better than smaller firms. Large firms tend to produce in large quantities and sell in many markets,
so if there is a fall in demand of their products in one area, they can switch to other areas. In addition large
firms do not concentrate on one product line, they make different products, such that if there is a fall in demand
for one product, other products can be produce and market.

B External Economies of Scale

- are benefits or advantages that any size firm may get because it is part of a large industry. Usually these
firms offer similar service and are located in a particular area. E.g. hotels, villas, guests houses, restaurants
whether small or large can benefit from external economies of advertising in the tourist trade.

- Internal economies of scale are highly dependent on the individual firm while external economies are only
gained if the industry to which it belongs expands.

External economies include:

1. Savings in costs are achieved due to the concentration of firms in the same location. These savings may arise
from the ready availability of raw materials, corporate advertising and skilled labour.

2. Growth in the industry may give rise to growth in government incentive, such as subsides, tax holidays and
reduced duties on raw materials.

3. Better roads, utilities etc. are established due to the concentration of firms in the same location.

4. Trade associations (Association formed by firms engaged in the same line of business) are easily formed which
help firms, with the organization of markets and forming representation to government bodies.

5. Firms may get special treatment from banks and other financial institutions.

Diseconomies of Scale/Disadvantages of Growth

Are disadvantages (rising costs) as a result of large-scale production.

Types of Diseconomies of Scale

(a) Internal economies of scale

(b) External economies of scale

Internal Diseconomies of Scale

1. Technical Diseconomies of Scale

Large equipment and machines are expensive to purchase and maintained. When machines are out of service
(idle) due to a reduction in demand, overhead costs will still have to be paid. In addition, the labour needed to
operate the equipment may need training that is expensive.

2. Managerial Diseconomies of Scale

Management is affected by over expansion. Managers may be out of touch with what is happening in the firm
and the communication process between management and workers may slow down. Also decisions are not
made and implemented quickly enough (too many department). This may result in production time being lost.

Labour may be affected by the extensive specialisation undertaken in the firm. Workers may experience
boredom, and this can result in reduction in productivity. This occurring overtime will definitely increased costs.

3. Financial Diseconomies of Scale

Interest rates on loan may rise and firms who sell shares in the stock market may lose if the market fails.
4. Marketing Diseconomies of Scale

Costs may rise as firms compete to sell their products. Advertising and other sales promotion techniques may
be costly and may still not be effective at increasing sales.

5 Research and Development Diseconomies of scale

Requires the employment of professionals such as scientists who are usually highly paid. In addition, the
process of research and development can be lengthy, attracting higher costs to the firm. When research and
development is complete, new equipment may have to be purchase resulting in increase costs.

6. Risk bearing Diseconomies of Scale

Additions to the product line may not be successful, leaving the firm with production, financial and marketing
cost to cover. Cost of launching the new product may take a long time to be covered.

External Diseconomies of Scale

1. Social costs results from pollution, traffic congestion due to expansion and concentration of firms in certain
areas.

2. Government regulations to protect social costs such as pollution may prohibit the further expansion of the
industry.

3. Workers unrest may spread quickly throughout the industry, resulting in strike action and less productive time.

4. Bad publicity concerning one or two firms may adversely affect others firms in the industry.

5. Competition among firms will be greater and more capital will have to be spent on advertising and other sales
promotion methods in order to stay in business. This may result in price reduction and subsequently decline in
profits.

Advantages and Disadvantages of Large- Scale Production

Advantages of Large Scale Production

1. Mass production means large output and this encourages firms to find new markets
2. Products are uniformly produced by standardisation.
3. Producers costs per unit are reduced
4. Specialisation and division of labour can take place
5. Firms can easily expand investment as profits rise. E.g. merging or take over other firms.
6. Large-scale producers obtain credit from banks easier.

Disadvantages of large-scale Production

1. Firms may not be able to keep up with demand - (sales may fall)
2. Limited market size limits production lading to a reduction in the workforce. If workers are made redundant
payments will have to be made to them.
3. Limited market size makes firms more competitive against each other and sometimes they are force to diversify
into other areas.

Limits to Large Scale Production

1. The size of the market

2. Plant capacity and capability
3. Size of inward investment
4. Level levels of consumers
5. Levels of competition
THE LAW OF DIMINISHING RETURNS

States that when a factor of production remains constant /fixed (Eg .land) and the producers keeps adding more and
more units of a particular variable factor (E.g labour), there will come a point where the marginal (additional) product
declines and then the average output will also decline.

Fixed Factor : Land

Variable Factor: Labour/workers/People
Output: Farm Products (Oranges)

_________________________________________________________________________________________

Land No of Total Average Produce Marginal Product (income from

Workers Produced Per Units from adding one worker)
__________________________________________________________________________________________

2 1 10 10 0

2 2 30 15 20 (30-10)

2 3 57 19 27 (57-30)

2 4 72 18 15 (72-57)

2 5 75 15 3 (75-72)

The table shows what happen to production each time labour is added to the fixed factor (land). Land is fixed at 2
acres, but the number of workers increased by one each time. The total produced is what is achieved by the
combined efforts of all the workers. Average output is obtained by taking the total produced and divide this by the
number of workers. E.g. if you divide 30 by 2 you will get 15. The marginal output is obtained by subtracting the
previous total produced figure from the one arrive at afterwards. E.g. when 1 worker was employed, the total
produced was 10 but when the 2nd worker was employed, the total production move to 30 units, a difference of 20
(30-10).

THE SMALL FIRM

Definition and Characteristics

It is quite difficult to obtain a definition of a small firm that would satisfy all industries. The following characteristics
are used as a guide to define what a small firm is in Caribbean Economies.

1. A small firm is virtually 'small' in size, occupying a few thousand square feet(difficult to set an exact size).
2. Its total assets( not including land) will not be more than $1 million in any Caribbean currency.
3. The small firm normally does not have more than 2 managers.
4. The annual profit level of a small firm will not exceed $120,000
5. Sole traders, convenient shops, repairs, barbers dressmaker, tailors etc, are examples of small firms.
6. Banks do not like to give small firms loans because of the nature of their business. Note this does not mean that
small firms or their owner cannot get loans.

Role and Function of the small firm in the Economy

Small firms survive despite the growth of and competition from large firms. The reasons for their existence include:
1. Some entrepreneurs want their business to remain in the family. Expansion may require the employment of
individuals outside of the family.
2. The markets may be small and do not require large operations e.g. the makers of hearing aids, crutches,
artificial limbs etc.
3. Some firms are essential linkages to larger firms e.g. in providing raw materials.
4. Some firms have missed good opportunities in the past to expand. Others do not have enough collateral to
access loans for expansion.
5. Owners of some small firms do not have the management and technical knowledge to enable expansion.

Value of small firms to the Economy

1. They provide employment

2. They cater to the need and demand of small local communities.
3. They can respond to customers needs faster than larger businesses.
4. Small firms can be sources of information for larger firms. They provide information from customer about
changes in taste, prices, etc to wholesalers and producers.
5. They form the basis of the free market economy.

Advantages of small firms

1. There is more personal contact between employees and customers

2. Small businesses are located in small district and town not services by large businesses.
3. They usually have small and manageable number of staff members, therefore problems can be dealt with easily.
Staff relationship can also be greatly enhanced.
4. They provide a service to the community that large businesses do not always provide. E.g. selling in very small
quantities.

Disadvantages of small firms

1. They find it difficult to obtain loans from banks and other financial institutions.
2. They are not able to afford specialist and management services, which are necessary for the survival of firms in
the modern business world.

REVIEW QUESTIONS

1 a. Explain the term 'small business" as used in the Caribbean and give THREE examples to
illustrate your answer (6 marks)

b. (i) Identify THREE problems affecting the development of small businesses in

your country.

(ii) State TWO activities that have contributed to the development of small business in
Your country (5 marks)

c. Select TWO of the problems which you identified in part (b) (i) and for EACH problem, suggest
two measures you would recommend for dealing with it. Show how the country could benefit from
any ONE of your suggestions.

2. a. Distinguish between large-scale and small-scale industries. Select a Caricom country and identify
ONE example of a large-scale industry and ONE example of a small-scale industry in that territory
. (6 marks)

b. Discuss the operations of the TWO industries you named in part (a) to show why
they are so classified. (5 marks)

c. " Developing countries have more to gain from investing in large-scale industries". Discuss this
statement giving FOUR reasons why you agree or disagree with it. (7 marks)
UNIT VI - CONT'D ORGANIZATION OF THE FACTORS OF PRODUCTION

Capital Intensive versus Labour Intensive in Developing Countries

Capital Intensive Production

Means that the production process utilizes more machine and equipment along with a limited number of
workers/labour.

Examples of Capital Intensive Production

- mining industries such as oil, bauxite, metals

- Telecommunications industries
- light and power
- car manufacturing

Advantages of Capital Intensive Production

1, Output can be increased extensively because machines are used.

2. Capital intensive production allows individuals to operate complex machines, thus increasing the skills and
improving the human resources of the country.
3. Production time is speeded up in the making of certain goods and this can result in overall efficiency and growth
in the industries.
4. Production cost per unit will be less and more goods can be produced.
5. Labour costs which may include pension and health insurance are reduced.
6. There are no major strikes to encounter as with labour intensive production.

Disadvantages of Capital Intensive Production

1. Machines are often expensive and difficult to maintain.

2. Cost of machines is high and firms may have difficulty in replacing them when they become obsolete.
3. There is a limit to the number of use that machines and equipment may be put unlike labour which can be shifted
to a number of uses.
4. Capital intensive product is not always the most appropriate technology to use in the Caribbean where there is
an excess supply of labour, because it contributes to unemployment.

Labour Intensive Production

- means that the production process utilizes more human effort (labour) with a limited amount of capital
equipment.

Examples of Labour Intensive Industries

1. education
2. entertainment
3. food and beverage production
4. finance/banking
5. farming
6. cottage industry

Some industries do not fall into neither capital intensive nor labour intensive because they may spend just as much
capital on labour as they do on capital equipment e.g. garment industry.

Advantages of Labour Intensive Production

1. Labour is more flexible because it can move or shift to different occupations and to various locations more easily
than machines.
2. In highly populated areas, it is cheaper to employ labour than capital equipment.
3. It is cheaper and more appropriate to employ workers for some tasks than machines due to the impersonal
nature of machines.
Disadvantages of Labour Intensive Production

1. Labour may not be as productive as it should due to lack of proper training.

2. Labour may not be highly motivated to work because good personal management and general leadership skills
are lacking.
3. Labour may be as expensive as capital in some areas because of high wages, insurance and pension schemes,
bonuses, paid leave being given to workers.
4. Labour migration can cause some industries to be affected e.g. agriculture
5. Strikes and other industrial action can reduce productivity of industries.

Mechanization and Automation

Mechanization

Is the use of machine to partially replace human labour and animal power. NB. Man is needed to operate
machines. E.g. the use of computer instead of manual typewriters, use of tractors rather than animals to plough land,
use of calculators, cash registers, adding machines to replace the mental power of man.

Automation

1. Is a further stage of mechanization in which the production process is carried out with little or no human effort.
2. The use of programmed methods aided by computer technology to replace a number of functions which human
beings would normally control.
e.g. production of sugar
production of sodas
use of automatic washing machine

Reasons for machines and other aids in the production process

1. To decrease the costs of production and increase profits

2. To reduce human errors
3. There are certain weaknesses of the labour intensive methods of production:
a. Less output due to strike, illness, laziness
b. lower quality due to lack of consistency
c. production costing more due to mistakes and the volume of labour.

Advantages of Automaton and Mechanization

1. It reduces the time taken to complete production. This results in increased output.
2. Lower costs of production due to bulk buying, discount, low interest rate for loan (economies of scale).
3. Labour costs can be reduced and also bad publicity due to industrial unrest.
4. Machines may run for long periods without the need for higher payments thus reducing overheads.
5. Any savings experienced by the firm may be transferred to the consumers in the form of cheaper prices.
6. Standardization is achieved since machines make all units a like e.g. car assembly.
7. Social benefits such as more medicines produced, more consumer goods produced and people can have a
better standard of living.
8. Global communication is also improved.

Disadvantages of Automation and Mechanization

1. Labour may be replaced by machines resulting in unemployment

2. The technology may be inappropriate for the Caribbean e.g. high fuel use.
3. Spare parts may be expensive and need to be imported.
4. Machines which are out of service increase overhead costs.
5. Air pollution increases
COMPUTER AIDED DESIGN (CAD)

Is an information system used in production and other areas. In the past persons were employed to do pattern
drafting and designing manually, but now these are done with the use of CAD software. CAD is also use in
architecture, engineering and interior designing.

Computer Aided Instructions (CAI)

Is a new technology that has the potential to benefit any one who has access to a computer and can understand
the language in which instruction is given. Instructional material is available both on the internet and compact disc (in
text/word form). In addition it contains graphics.

CAI can be used to develop skills and to deliver tertiary education. Its most common applications are currently in
business and industrial environments, which requires employees to be trained in specific skills. One of the benefits of
CAI is that instruction can be given in the student's own time and pace (no teacher needs to be present).

When skills are developed/knowledge gain, it does not only benefit the employee, but the employer also benefit by
not having to disrupt the working day to employ trainers and by getting improved skills in his workforce.

REVIEW QUESTIONS

1. The management of a car assembly plant has decided to take certain steps to improve the productivity of its
work force. What role should any TWO of the following factors play in increasing labour productivity?
i. Motivation
ii. Computer Aided Design
iii. Specialisation

B. Suggest to the management team how it could incorporate any TWO factors in its plans.

2. (a) Define the term 'small firm' using the following points:
(i) Capital needs
(ii) Number of employees
(iii) size of output

(b) (I) What are 'economies of scale'?

(ii) State THREE types of internal economies of scale available to a large firm.

(c) Comment on THREE reasons why small firms survive despite the growth of large firms with their ability
to enjoy economies of scale.

3. a. (I) Explain the meaning of the term 'automation'

(ii) Give THREE examples where automation has been introduced in industry
or business in the Caribbean region.
b. Outline THREE problems which could result from the introduction of automation in an industry in the
Caribbean.

c. Assess the contribution that automation has made to the performance of any ONE extractive industry
or ONE service industry in your country.

d. Differentiate between labour-intensive and capital intensive methods of production.