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Difficulty: MediumDivision of Labor and Specialization

An electronic appliance assembling enterprise in Lagos divided its production process into small, repetitive technical tasks to increase output. However, management noticed that further division of labor could not be economically sustained because consumer demand for the finished appliances remained very low across surrounding markets. Which factor primarily restricts the extent of division of labor in this firm?

  1. The size and extent of the marketAnswer
  2. B
    The geographical concentration of competing assembly plants in the region
  3. C
    The immediate onset of diminishing returns to additional labor units
  4. D
    The shift of production overhead from variable costs to fixed costs

Answer

The size and extent of the market primarily restricts the division of labor in this enterprise.
Specialization requires mass production to be profitable. When the market demand for a product is limited, a firm cannot sell high quantities, thereby restricting how far task division can be implemented effectively.

Step-by-Step Solution

1
Analyze the scenario details
The firm introduced specialization, but further division of labor was hindered by low consumer demand for its appliances.
Identifying the bottleneck in the production process reveals which economic principle limits specialization.
2
Apply economic principles of production
Adam Smith's principle states that 'division of labor is limited by the extent of the market.'
When market size is small or demand is low, firms cannot sell the massive volume of goods produced under intense specialization.

Key Concept

Extent of the Market as a Limitation on Division of Labor
Estimated Time:1m 0s
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Topics

Division of Labor and Specialization

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