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Difficulty: EasyDivision of Labor and Specialization

A furniture manufacturing firm breaks down its production process into distinct sequential tasks: timber cutting, frame assembly, sanding, and varnishing. Which of the following factors primarily limits the extent to which the firm can practice this division of labor?

  1. The size of the market for the finished furnitureAnswer
  2. B
    The classification of machinery as a variable cost rather than a fixed cost
  3. C
    The degree of geographical concentration of rival firms in the same region
  4. D
    The availability of short-term Treasury bills in the capital market

Answer

The size of the market for the finished furniture
The correct answer highlights market size. Division of labor increases output significantly; therefore, unless there is a sufficiently large market to demand and consume the resulting high volume of goods, sub-dividing tasks into minor specialized operations becomes economically unviable.

Step-by-Step Solution

1
Identify the economic principle being tested
The question addresses the primary limitation to the extent of division of labor in production.
Division of labor requires continuous volume production to justify assigning workers to narrow, specialized sub-tasks.
2
Evaluate the relationship between market demand and specialization
Adam Smith established that 'division of labor is limited by the extent of the market.' When the market demand for a commodity is small, mass production and high specialization lead to overproduction and idle capacity.
A firm can only subdivide labor extensively if sales volume is large enough to absorb the continuous output generated by specialized workers.

Key Concept

Extent of the Market as a Limitation to Division of Labor
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Topics

Division of Labor and Specialization

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