PRODUCTION

Production refers to the process of transforming factor in parts into output ie goods and services that satisfy human
wants. OR

It refers to the process of creating utility in goods and services to satisfy human wants.

TYPES OF PRODUCTION

Production is of two types and these include.

1. Direct production
2. Indirect production

Direct production/Subsistence production:

This refers to the production of goods and services for one’s own consumption for example constructing one’s
house, teaching one’s own child.

Characteristics of Direct production

• Family labour is mainly used

• Simple tools are mainly used e.g. hoes.
• It is carried out on small scale.
• There is limited or no specialization.
• Low quality output is mainly produced.
• It requires less capital.

Demerits of Direct production

• It limits country’s foreign exchange earnings

• Leads to poor standards of living
• Lowers tax revenue
• Low quality output
• Limits employment opportunities.
• Limits economic growth
• Lead to under utilization of resources.

Indirect Production/Commercial production:

This refers to the production of goods and services for exchange. It involves use of money to get what you cannot
produce.

STAGES OF PRODUCTION/LEVELS OF PRODUCTION

1. Primary production: This involves the extraction of raw materials from nature by man to be used in the
production of goods and services. It involves activities such as fishing, lumbering, mining etc. The output from this
type of production does not offer direct utility to the consumer in most cases.

2. Secondary Production: This refers to the transformation of the extracted raw materials into finished or semi
finished goods ready for use. The industries which carry out secondary production can be classified into processing,
manufacturing, construction and assembling industries

Under secondary production there intermediate industries. These are industries that produce goods to be used as
raw materials in other industries for example leather turning industries, tyre making industries etc
3. Tertiary Production: This refers to the provision of services to the final consumers. Such services include teaching;
banking etc these services are both personal and commercial Commercial services are those offered during trade
e.g. banking, insurance, and transport while personal services include teaching, nursing, etc.

FACTORS OF PRODUCTION/AGENTS OF PRODUCTION –

These are the resources or inputs that are used to facilitate the production of goods and services or are resources or
inputs used to produce an output of goods or services from the production process. These factors can be natural or
man made Factors of production are also known as tools of production and they include;

(i) Land
(ii) Labour
(iii) Capital
(iv) Entrepreneurship

LAND

This refers to the natural resources on, under and below the earth’s surface that facilitate the production process
e.g. water, air, soil etc. The monetary reward for land is rent.

CHARACTERISTICS OF LAND

i. It is subjected to the law of diminishing returns.

ii. ii. It is geographically immobile ie cannot be moved from one place to another but occupationally mobile
iii. iii. Its supply is fixed ie perfectly inelastic.
iv. iv. It is a free gift of nature. Therefore its supply price is zero.
v. v. It is not homogeneous ie it varies in terms of fertility and value from one place to another.
vi. vi. It has no opportunity cost.
vii. vii. Its productivity can be increased by use of other factors like labour and capital.
viii. It’s a passive factor of production meaning that it can not start production by its own.

IMPORTANCE OF LAND

i. It is a source of raw materials e.g. stones, minerals etc.

ii. It acts as a dumping ground for waste production.
iii. It is a source of energy ie Hydro electric production.
iv. It acts as collateral security to acquire loans.
v. Land can be used for recreation in a way that recreational facilities like stadiums are built on land and it
also provides a good scenery for tourism
vi. It is a source of revenue to the government ie land can be taxed as a property.
vii. It acts as a tourist attraction site.

NOTE:

The reward for land is rent and more precisely it is economic rent Rent:

This refers to the monetary reward to land for its contribution in the production process as a factor of production.

CAPITAL

This refers to any man made stock of assets accumulated by an individual or society for the production of other
goods and services e.g. machines, buildings etc.
TYPES OF CAPITAL

 Liquid Capital: This refers to capital inform of cash ie coins and notes.
 Real capital. This is capital in form of physical assets e.g. factories, machinery, vans etc.
 Working capital/Circulating capital: This refers to capital in form of Physical assets that are used in the day
to day running of the business. It involves raw materials, fuel etc.
 Human capital: This refers to the skills or knowledge that an individual possesses. It is acquired through
training.
 Fixed capital: This refers to capital which does not change in the course of production. It includes land,
buildings machinery etc.
 Foreign capital: This refers to capital owned by foreigners in an economy.
 Private/individual capital: This refers to capital which is exclusively owned and yields income to the owner.
 Public/Social/overhead capital: This refers to capital which is collectively owned and used and it is provided
by the state.
 Sunk capital. Refers to specialized capital which cannot be easily adapted to an alternative use other than
the one for which it was originally designed e.g. a railway line cannot be used for road transport etc.
 Floating capital. This is capital which can be used for a number of purposes and in a variety of ways e.g.
money, land, buildings.

CHARACTERISTICS OF CAPITAL

i. It has an opportunity cost

ii. It has a monetary value
iii. It depreciates over time.
iv. It is a man made factor of production.
v. It is less subject to the law of diminishing returns.
vi. It can be obsolete or out dated e.g. machines.
vii. It is highly mobile
viii. Capital is perishable, it can be destroyed
ix. Supply of capital is elastic. It can be increased when required.

Importance OF CAPITAL IN ECONOMIC DEVELOPMENT

1. Increases output: Capital increases the level output since it simplifies and makes production quicker. Hence
accelerating the rate of economic growth

2. It facilitates further accumulation of capital. Capital inform of fixed assets acts as collateral security facilitates
borrowing from financial institutions for further production of goods.

3. It improves quality of output. Capital facilitates research which promotes production of better quality output
which improves people’s standards of living.

4. It improves socio- economic infrastructure: Capital in form of machines helps to improve and construct new roads,
extend or generate power which all promote economic development.

5. It is used to reward other factors of production: Capital in form of liquid money is used to reward other factors of
production such as labour in the production process.

6. It improves / increases efficiency or productivity of other factors e.g. labour efficiency; Capital in form of cash is
used for further education and training which helps to increase labour efficiency. Furthermore, use of machines
increases output produced by labour.
7. It facilitates full/optimum utilization of resources: Capital in form of machines facilitates the exploitation of the
world be idle resources. For example uncultivated land, unextracted minerals etc.

8. It monetizes the economy. It enables producers to change from primitive methods of production (subsistence) to
modern methods (commercial production) hence facilitating trade (exchange) for example capital in form of
machines.

9. It facilitates technological transfer and development. For example capital in form of cash enables research which
results in better production techniques. It also enables country/producers to buy more efficient methods of
production from other countries from one country to another which improves efficiency in production.

10. It improves entrepreneurial skills. It is the strongest weapon of an entrepreneur in mobilizing other factors of
production to play their role in economic development.

11. It reduces economic dependence and its consequences. Liquid capital facilitates research which enables a
country to produce what have been imported from other countries.

12. It creates more employment opportunities. Adequate working capital increases the level of output and utilizes
the would be idle resources which necessitates demand for more labour.

13. It improves the country’s BOP position. This is due to increased exportation of good quality products leading to
economic growth and development.

14. It promotes industrial development/facilitates the industrialization process. Capital in form of heavy machines is
employed to establish industrial plants.

NOTE:

Interest. This is the monetary reward for capital for its contribution in the production process.

LABOUR

Labour refers to all human efforts both mental and physical that contribute to the production process. OR

It refers to human effort both mental and physical directed at producing goods and services with a view of obtaining
a reward ie salary or wage.

Labour force is the number of people or proportion of the population that is made up of the working age group or is
available for employment in an economy at a given time.

TYPES OF LABOUR

The following are the types of labour

a) Productive labour.

This is the human effort directed at the production of goods and services that have exchange value and is rewarded

b) Unproductive labour.

This is the human effort that does not produce an output of goods and services or produce goods and services which
have no exchange or market value e.g. house wives, the owner of the school, renting your own house etc

Productive labour can be categorized into three categories ie

1. skilled,
2. semi skilled and
 3. unskilled labour

1. Skilled labour. This is one which is well trained and has practical knowledge in a particular field for example
doctors, engineers, teachers etc

2. Unskilled labour. Is that which lack formal education and with no practical experience in any particular job

3. Semi skilled labour. Is that labour with some little education and little practical experience e.g. s.6 drop outs, s.4
leavers

CHARACTERISTICS OF LABOUR

i. Labour is a very mobile both geographically and occupationally.

ii. Labour cannot be stored ie if a worker remains idle for some time, then his labour will be wasted.
iii. Labour cannot be separated from the labourer.
iv. Its quality can be improved upon through education and training.
v. The productivity of labour varies from one individual to another (heterogeneous).
vi. Labor has a poor bargaining power with the buyer of the service. It has no standard or reserve price.
vii. Labour is interchangeable with capital ie it can be substituted with capital
viii. It involves incurring costs for example it under goes training.
ix. Supply of labor is relatively inelastic. Meaning it can not be instantly increased to keep up with the
demand.
x. Labor is perishable in nature.

IMPORTANCE OF LABOUR

I. Increases productivity of goods and services

II. Management and supervision of the business
III. Trained labor minimizes wastages, reduces the cost of production when it uses modern techniques of
production.
IV. Skilled labour enhances the quality and quantity of production of goods and services.
V. Skilled labour increases the exploitation of idle resources leading to economic growth.
VI. Production of Goods and Services: Labor is essential for the creation and delivery of goods and services,
driving economic activity.
VII. Innovation and Creativity: A skilled workforce fosters innovation, leading to new products, technologies, and
improved processes.
VIII. Income Generation: Employment provides individuals with income, which contributes to consumer spending
and overall economic growth.
IX. Skill Development: Labor contributes to the development and enhancement of skills within the workforce,
increasing productivity and efficiency.
X. Social Development: Employment opportunities promote social stability and reduce poverty, leading to a
more harmonious society.
XI. Economic Diversification: A diverse labor force supports various industries, enhancing the resilience and
stability of the economy.
XII. Tax Revenue: Employed individuals contribute to government revenues through taxation, allowing for public
services and infrastructure improvements.
XIII. Market Demand: Higher employment levels lead to increased demand for goods and services, stimulating
further economic growth.
XIV. Human Capital Development: Labor contributes to the development of skills and knowledge, enhancing
overall productivity.
 XV. Production Efficiency: Skilled labor can improve the efficiency of production processes, leading to higher
output with the same resources.
XVI. Value Addition: Labor adds value to raw materials by transforming them into finished goods and services.
XVII. Flexibility and Adaptability: Labor can adapt to changing market conditions and technologies, allowing for a
dynamic response to economic needs.

ENTREPRENEURSHIP

Entrepreneurship refers to a factor of production which initiates and finances the production process.

An entrepreneur is a person who undertakes risks to start a business with an aim of making profits.

The reward for entrepreneurship as a factor of production is profit.

CHARACTERISTICS /QUALITIES OF AN ENTREPRENEUR

Successful entrepreneurs hold the following characteristics as listed below

Self-confidence: This is having a strong belief in one self and his/ her ability to achieve the set goals regardless of the
challenges.

Hard working: This is putting in extra effort, commitment, resources and times in order to achieve the set goals in
the set period of time.

Goal oriented: This is the ability to set goals that are SMART ie specific measurable, achievable given the available
resources, realistic and time bound and also to work with determination towards achieving them.

Dealing with failure: Entrepreneurs do not fear failure. Anybody who is afraid of falling will cancel whatever
achievement motivation he or she possesses. From the point of view of entrepreneur, failing is an opportunity to
learn from. (fear)

Persistent: This is the strong desire to do something consistently and continuously until the set goals are achieved
despite the various problems and disappointments in business.

Profit oriented; this means having a strong interest and direction towards operating profits in business. This can be
achieved through maximizing sales and minimizing costs of operation.

Builds for the future: Most successful entrepreneurs aim at creating long term enterprises that can even outline
them and hence provide a secure job and income for themselves and improved welfare and wealth for their families.

Commitment ;Success in business demand total commitment by the entrepreneur in terms of time , money and
lifestyle and the business has to be the major priority in the entrepreneur’s life.

Reliability and integrity; Success in business requires honesty, fairness and reliability in terms of doing what the
entrepreneur has promised, fulfilling contracts with customers.

Risk taking; Successful entrepreneurs are those who assess risks before committing their resources to identified
business ventures and then take moderate and calculated risks which can be foreseen by shifting them to insurance
companies.

Copes with failure; Successful entrepreneurs are those who recognize their failures, learn from them and seek new
opportunities.

IMPORTANCE OF ENTREPRENEURSHIP

Entrepreneurship has been recognized all over the world as a catalyst for development in any economy.
Entrepreneurship in developing countries in particular is being seriously advocated because of the following
importance:
1. Employment Generation: It helps to provide jobs through the establishment of new businesses, especially small
and medium scale enterprises.

2. Productivity: One of the factors for the greater interest in entrepreneurship has been the increasing recognition of
its role in raising productivity through various forms of innovation. Entrepreneurs, through their innovation and
creativity are capable of transforming existing business sectors, and creating new sectors. They are helping to bring
about new goods and services (expanding productivity) and supplying the needs of large enterprises, which have to
rely on their operations for business success.

3. Facilitate the transfer/adaptation of technology: It enables entrepreneurs to have the opportunities of developing
and adapting appropriate technological methods and provide a veritable avenue for skilled, unskilled and semi-skilled
workers.

4. Ensures increased resource utilization: It helps entrepreneurs to put limited resources that might otherwise
remain idle into good use. They contribute to the mobilization of domestic savings and utilization of local resources,
including human resources.

5. Stimulates growth in those sectors which supplies it with inputs: Entrepreneurship stimulates growth in its supply
market. The greater the number of entrepreneurship that exist in the downstream‘ of a particular sector, the greater
the market, hence, the greater the potential for increased capacity utilization.

6. Reinvigorates large-scale enterprises and public enterprises: Most large scale enterprises and public sector
enterprises depend on the activities of small and medium scale enterprises (SMEs) to supply them with various raw
materials and other component parts and also to assist them in the distribution of the finished goods to the final
consumers. Entrepreneurship has made it possible to be able to transform the public sector into a viable, market
oriented and profitable organization.

7. Encourages and sustains economic dynamism that enables an economy to adjust successfully in a rapidly
changing global economy: As a result of the dynamic nature of the environment, small and medium scale enterprises
have no choice than to respond and adapt to environmental changes from time to time.

8. Enables individuals to use their potential and energies to create wealth, independence and status for themselves
in society.

The above eight points are not in any way exhaustive.

9. Source of revenue to the government

THE THEORY OF COSTS

In order to generate an output of goods and services, a firm has to employ factors of production which must be paid
for normally in monetary terms. This constitutes a cost.

COST OF PRODUCTION

Production Cost. This concept is concerned with the relationship between cost and output. This relationship is
important in business decisions especially when profit levels and optimum levels are predicted.

Production is divided into types:

1. Short Run Costs

2. Long Run Costs

Costs. Refers to what the firm incurs in the production process to produce goods and services. Costs are monetary
expenses a firm incurs in order to produce an output of a commodity.
Costs of production can be categorized into social costs and private costs

1. Social costs. These are opportunity costs foregone by the society due to production of a particular
commodity instead of the other. Or social cost refers to the total cost to the society on account of
production of a commodity. It includes both private cost and external cost.
2. Private costs. Refer to monetary expenses incurred by a firm in production of a given amount of a
commodity.
Private costs are further divided into:
a) Implicit costs.
b) Explicit costs

a) Implicit costs.

These are costs of self owned, self employed resources used in the production process and neglected while
calculating/computing the costs of a firm. Examples of implicit costs

• Use of personal property in production

• Services provided by a house wife
• Use of family labour in the business
• Services of the owner

b) Explicit costs.

Are costs or expenditure on resources hired by a firm to use in the production and they are included in the
computation or calculation of the firm’s costs.

Examples of explicit

• Wages
• Rent
• Costs of raw material
• Transport etc

Explicit costs are further subdivided into:

i. Fixed costs
ii. Variable costs
iii. Total costs

I) FIXED COSTS (FC) OR OVER HEAD/ UNAVOIDABLE/ INDIRECT/ SUPPLEMENTARY COSTS/ INDISPENSIBLE COSTS

These are costs which do not vary with the level of output or Costs incurred by the firm irrespective of the level of
output produced. They are incurred even if the level of output is zero.

Examples of fixed costs

i. Rent
ii. Interest on loans
iii. Insurance
iv. Taxes
v. Depreciation costs
vi. Salaries of top managers
VARIABLE COSTS (VC) OR PRIME/ DIRECT/ AVOIDABLE/ OPERATING COSTS/ RUNNING

These are costs that vary directly with the level of output produced i.e. they increase with the increase in the level of
output Examples of variable costs

i. Cost of raw materials

ii. Costs of advertising
iii. Transport costs
iv. Wages for labour
v. Electricity costs

It should be noted that at Zero Output, V.C are equal to Zero.

TOTAL COSTS (TC).

These are overall expenses incurred by a firm in the production of a given level of output OR Are total expenses
incurred by a firm in the production of a given level of output on both fixed and variable factors.

Hence, TC = VC + FC. When output is Zero, TFC = TC.

Output OR Quantity (Q) Fixed Costs (FC) Variable Cost (VC) Total Cost (TC)
0 300 0 300
1 300 300 600
2 300 400 700
3 300 450 750
4 300 500 800
5 300 600 900

RELATIONSHIP BETWEEN TFC, TVC AND TC

• When TVC is zero, TC is equal to TFC.

• When output is zero, TVC is equal to zero which means that TVC starts from the origin.
• As a firm increases its level of output, the TVC increase and as output reduces, the TVC reduce hence the
variable cost curve begins from the origin and it has a positive slope.
• As a firm increases its level of output, the total fixed costs remain constant hence the fixed cost curve of a
firm is represented by a horizontal straight line.
• As the firm increases its level of output, the total costs also increase and as it reduces the level of output,
total costs also reduce. But when output is zero, the total costs are equal t the fixed costs.
• Therefore the TC curve of a firm has got a positive slope and must have the same slope as the variable cost
curve but it begins at a point where the fixed cost curve meets the y-axis.
• When output is zero, TC is equal to TFC and as output increases, the costs and total variable costs increase.
• The TC increases at the same amount of TVC. This is because the TFC is fixed for all levels of output in the
short run.

SHORT RUN VARIATION IN COSTS

To analyze the relationship between costs and output, we use average and marginal costs instead of totals in the
short run period. Therefore costs can be described as:

1. AC (Average Costs or Average Total Costs ATC)

2. AFC (Average Fixed Cost)
3. AVC (Average Variable Cost)
4. MC (Marginal Cost)
1. Average Total Cost/Average Cost (AC/ATC). This refers to total cost per unit of output.

This is expressed as ATC/AC = TC

Q
The AC curve is U-shaped in the short run as illustrated below.

In the short run, the AC curve is U-shaped because of the law of diminishing returns. The AC curve first falls because
of specialization and the increase is due to concentration.

Therefore average costs go on reducing. This is because the output of the firm increases at a higher rate compared
to the costs because of increasing marginal returns. It then reaches the minimum point i.e. at point A where the firm
produces the highest level of output (Q0) at the lowest cost (C0).

Point A is referred to as full capacity. Full capacity refers to a point where a firm is producing the highest level of
output at the lowest cost. It is the point of full utilization of the country’s/firm’s resources.

2. Average Fixed Cost. This refers to the total fixed cost per unit of output produced. It is obtained by dividing the
fixed costs by the firm’s level of output.

This is expressed as AFC = TFC

Q
Illustration of AFC Curve

Since total fixed costs are constant, average fixed costs decrease as the level of output increases. This is because the
total fixed costs which are constant are spread over in all units of output. Hence the AFC is down ward sloping from
left to right.

3. Average Variable Costs. This refers to the total variable costs per unit of output produced. It is obtained by
dividing the average total costs by the firm’s level of output.

This is expressed as AVC = TVC

Q
Illustration of AVC Curve
NB. The AVC curve is U-shaped in that it starts with falling, it reaches the minimum point and begins to rise.

4. Marginal Cost. This is an extra cost incurred due to production of an extra unit of output.

This is expressed as MC = ∆TC

∆Q

Illustration of AVC

ATABLE SHOWING THE RELATIONSHIP BETWEEN AFC, AVC, AC AND MC

Output (Q) TFC TVC TC AFC AVC ATC/AC MC

0 300 O 300 Infinity Infinity Infinity -
1 300 300 600 300 300 600 300
2 300 400 700 180 200 350 100
3 300 450 750 100 150 250 50
4 300 500 800 75 125 200 50
5 300 600 900 60 120 180 100
6 300 720 1020 50 120 170 120
7 300 890 1190 42.9 127.1 170 170
8 300 1100 1400 37.5 137.5 175 210
9 300 1350 1650 33.3 150 183.3 250
10 300 2000 2300 30 200 230 650

RELATIONSHIP BETWEEN AC AND MC

• Both are U-shaped.

• Initially AC falls, reach a minimum and then rise.
• When AC is falling, MC is below however, MC begins to rise earlier than Average Cost (AC).
• MC is less than AC because the fall in MC is related to one unit of output while in the case of AC the same
decline is spread over all units of output.
• MC is equal to (AC) when AC is at the minimum.
• The MC curve cuts the AC curve from below at its minimum point.
• Both are flat in shape in the long run and in the short run are u-shaped.
RELATIONSHIP BETWEEN MC, AVC, AFC AND AC

• The AC, MC and AVC are all u-shaped due to the law of variable proportion / diminishing returns.
• The AFC curve declines continuously and is asymptotic to both axes .It means that the AFC approaches both
axes but never torches either X-axis or Y-axis.
• The AVC curve first declines, reaches a minimum and rises thereafter, when the AVC curve reaches its
minimum point A the MC curve equal the AVC curve.
• As the level of output increase, AVC curve tends closer to the AC curve due to the continuous falling AFC.
• AC, AVC, AFC and MC are known as per unit cost of a firm and their curves are per unit cost curves of a firm.
• MC cuts AVC at its minimum

Note that AC/ AVC/ MC are U-shaped because.

• It is due to the economies and diseconomies of scale in the long run.

• It is due to the law of diminishing marginal returns.

LONG RUN PRODUCTION

In the long run the firm can expand in size by varying all factors of production including those which were fixed in the
short run ie the firm can change the scale of its activities.

The relationship between changes in scale and changes in output are described as Returns to Scale.

RETURNS TO SCALE

As the firm varies the factors of production in the long run, there are three ways of looking in the Input –Output
relationship

1. Increasing returns to scale

2. Constant returns to scale
3. Diminishing returns to scale.

1. Increasing Returns To Scale.

This is a situation where output produced by expanding the scale of production increases more than an increase in
inputs ie meaning inputs are doubled output more than that doubles .

2. Constant Returns of Scale

This refers to a situation where an increase in out is proportionate to the increase in input as the firm expands its
scale of production.

3. Diminishing /Decreasing Returns to Scale.

This is when the increase in output is proportionately less than the increase in inputs.
GRAPHICAL ILLUSTRATION OF IRS, CRS AND DRS

i) Increasing returns (IRS) is illustrated by the upward sloping part of the marginal product curve
ii) Constant returns to scale (CRS) by the horizontal part of the MP
iii) Decreasing returns to scale (DSR) are shown by the diminishing/decreasing curve of the MP curve

VARIATIONS OF COSTS IN THE LONG RUN

In the long run a firm can expand its sale of operation by acquiring new equipment and building new plants. No
factor of production is fixed in the long run. Thus, the firm is able to alter its scale of production in the long run by
increasing all the factors of production which is not the case in short run. When all factors are changed in same
proportion, the behaviour of output is analyzed with the help of laws of returns to scale.

LAC curve is derived by joining the minimum points of all possible SAC curves, as shown in the figure below. Thus, the LAC
curve is also called an envelope curve or planning curve. The curve first falls, reaches a minimum and then rises, giving it a
U-shape.

We can use returns to scale to explain the shape of the LAC curve. Returns to scale depict the change in output with respect to a
change in inputs.
• During Increasing Returns to Scale (IRS), the output doubles by using less than double inputs. As a result, LTC increases less
than the rise in output and LAC will fall.
• In Constant Returns to Scale (CRS), the output doubles by doubling the inputs and the LTC increases proportionately with
the rise in output. Thus, LAC remains constant.
• In Decreasing Returns to Scale (DRS), the output doubles by using more than double the inputs so the LTC increases more
than proportionately to the rise in output. Thus, LAC also rises. This gives LAC its U-shape.
Note

• The firm’s decision about the size of the Plant depends upon the market size. If demand is small, the firm will use Plant
K for the purpose of production but doing so it will have to incur higher average cost.
• SAC2 of Plant L is lower than that of first Plant K, that is, per unit cost of production is lower in Plant L as compared to
Plant K. This is due to the tendency of economies of scale. Economies of scale arise from several factors with the
increase in production, therefore Point B is an Increasing Returns to Scale.
• Plant N & O are larger in size than Plant M, but the SAC4 and SAC5 are higher than SAC3 curve. The average cost
increases from Plant M when another Plant is added or an expansion in the scale of production. This happens because
of diseconomies of scale. Point C is the minimum average cost point (Constant Returns to Scale), where the Plant M is
producing a higher output (600 Units) at a lower cost (30) any and increase after Point C would produce output at
higher cost and therefore Point D & E is a Decreasing Returns to Scale.