Examkin

Question

Difficulty: MediumDivision of Labor and Specialization

A commercial agricultural processing firm in Jos reorganizes its operations into distinct sequential stages: cleaning, de-hulling, grinding, and vacuum sealing. Despite achieving high worker efficiency within each department, the firm is unable to expand its scale of output or lower average costs further because the local effective demand for its processed product is insufficient to absorb higher output. Which factor primarily limits the firm from realizing the full economic benefits of division of labor?

  1. The extent of the marketAnswer
  2. B
    The law of diminishing marginal utility
  3. C
    A continuous rise in fixed costs of production
  4. D
    Geographical localization of industry

Answer

The extent of the market is the fundamental factor that limits division of labor and specialization in production.
Division of labor enables large-scale production through task specialization. However, as established by Adam Smith, specialization can only proceed as far as the extent of the market permits. When effective market demand is low, a firm cannot sell higher output, rendering further division of labor economically unviable.

Step-by-Step Solution

1
Analyze the firm's situation described in the stem
The firm has successfully divided tasks internally, but cannot expand total production further due to insufficient consumer demand.
Specialization requires a large market volume so that mass-produced goods can be continuously sold.
2
Apply economic principles governing division of labor
Adam Smith's principle states that 'division of labor is limited by the extent of the market.'
When market demand (the extent of the market) is small, producing in specialized volume leads to unsold inventory rather than economic efficiency.

Key Concept

Limitation of Division of Labor (Extent of the Market)
Estimated Time:1m 0s
Rate this question

Topics

Division of Labor and Specialization

More questions from this topic