QN 1.With critical analysis make a detailed review on industrial production and costs in LDCs.

Industrial production refers to the output of industrial establishments and covers sectors such as
mining, manufacturing, electricity, gas and steam and air-conditioning. This indicator is
measured in an index based on a reference period that expresses change in the volume of
production output. Production in economics is an activity carried out under the control and
responsibility of an institutional unit that uses inputs of labour, capital, and goods and services to
produce outputs of goods or services. Although these sectors contribute only a small portion
of gross domestic product (GDP), they are highly sensitive to interest rates and consumer
demand .This makes industrial production an important tool for forecasting future GDP and
economic performance. Industrial production figures are also used by central banks to
measure inflation, as high levels of industrial production can lead to uncontrolled levels
of consumption and rapid inflation. The Industrial productions came about during the Industrial
revolution.

This indicator is measured in an index based on a reference period that expresses change in the
volume of production output. Index used to measure industrial indicators include: The Index of
Industrial Production (is an index  which details out the growth of various sectors in an economy
such as mineral mining, electricity and manufacturing),Industrial Production Index (measures the
real production output of manufacturing, mining, and utilities).

Industrial production in Less developed countries(LDCs)

In reality all less developed countries have not achieved full industrialization. Manufacture in
these countries is accomplished largely by traditional methods that have varied little over
successive generations. Consequently, although manufacturing (transforming raw materials into
finished goods) is an essential component of industrialization, there is considerably more to the
process. Low developed countries can be classified basing on level of industrialization as follows

newly industrializing countries (NICs), The first and smallest group that contains the most
industrialized countries in that they achieve industrial status on at least two dimensions. Located
mainly in East Asia (including countries like South Korea, Malaysia, Thailand, Indonesia)
and Latin America(including countries like Mexico, Brazil, Argentina, Venezuela), these eight
NICs accounted for more than 40 percent of all merchandise exports from developing countries
in 1995. Although China and, to a lesser degree, India (because of their huge population bases)
contribute significantly to the merchandise exports of LDCs, they have not developed their
industrial infrastructures to the same extent as these NICs and therefore do not belong in the
most industrialized group of LDCs.

The second, very large group of LDCs in terms of industrialization are those with a traditionally
strong manufacturing base that also have a substantial agricultural component. Their
economies depend on agricultural and industrial modes of production. The goods that these
LDCs predominantly manufacture are essential to their own domestic markets and, because they
are labor intensive, also compete very well in the international market. In addition, they export
natural resources and agricultural products.

The third and final group of LDCs are not industrialized on any of the five dimensions . On
average, less than 10 percent of their labor forces are employed in industry; most (76 percent)
work in agriculture. Manufacturing contributes only 20 percent to their national economies; the
bulk of income derives from natural resources and cash crops grown exclusively for export. Per
capita gross national product is very low (US$215). Most of these nonindustrial LDCs are
located in sub-Saharan Africa and Asia (UNDP 1998).

Dimensions and measures of industrial production

Economic activity: This look into factors like: Percentage of labor force in manufacturing,
Percentage of labor force in industry.

Economic output: This consider: Manufacturing as a percentage of gross domestic product,

Industry as a percentage of gross domestic product, Gross output per employee in manufacturing,
Earnings per employee in manufacturing.

Organization
This consider issues like: Wage and salary earners as a percentage of the labor force, Number
of manufacturing establishments employing fifty or more workers per capita.
Mechanization
Factors considered include: Commercial energy consumption per capita, Total cost of fuels and
electrical energy per employee in manufacturing.
Technology
Factors considered include: Percentage of professional and technical workers in labor force,
Registered patents in force per capita, Registered industrial designs in force per capita.

The following are some of challenges to industrial production and measures to be taken by
less developed countries.

Automation

Some behind the scenes challenge faced by manufacturing industries is actually finding the right
tool to support their manufacturing operations.

Technological advancements seem to be happening every other day, increasing demand and
putting more strain on manufacturers to fulfill larger orders, this is a cause for concern for the
humble maker as they compete with the large-scale manufacturing corporations. 
Bigger companies should have the capital to overcome the manufacturing challenges of
automation. Manufacturing scheduling software gives manufacturing businesses the firepower to
be able to compete in the marketplace by overcoming any manufacturing challenges one could
face within one easy-to-use, visual dashboard.

Lack of skilled workers

In most developing countries people have no skills on industrial production, most of the people
are have low education level. Young people have a misunderstanding of the industry, and the
older workers are retiring. According to The Manufacturing Institute and Deloitte Consulting
LLP, 22% of the workers in manufacturing will now be retiring in the next ten years.

This can be handled by taking the initiative and help unskilled workers find the opportunities to
become a manufacturer through offering scholarships to anyone studying business management
and through partnership with community colleges or even offer training programs to overcome
the unskilled labor gap.

Inventory and project management

Inventory management and handling the floor-level management is something that will always
plague the shop floor as when try to fulfill orders amidst the chaos of running a business. if can’t
stay on top of inventory management, it’s going to affect the sales and manufacturing orders
directly.

This can be handed by involving inventory and production schedules by investing in a system
that can help you control these areas.

Finding a manufacturing ERP software that can help you automate your inventory management
and schedule your projects will help to overhaul the fulfillment rate. This allows focus on scaling
the business instead of being overwhelmed with these management processes.

Consumerism trends

Customer spending habits are a continuously changing landscape. Over the last few decades,
customers were always looking to save a buck when doing their shopping.

That means back in the day, entrepreneurs could outsource their manufacturing, hence why a lot
of products were made to save themselves some coins too.
However, nowadays, customers want quality, ethically made products and want to know the
process behind how their products were made.

The only way to stay ahead of these manufacturing challenges is to research the market.

Focusing on building a trustworthy brand, having an environmentally friendly product, and

improving customer satisfaction.

Selling direct to consumer

As more people turn to e-commerce to make their purchases, manufacturing businesses have
been able to cut out the middle man and sell their products by themselves.

Unfortunately, more control means more responsibility and greater risk.

As the manufacturer will be handling everything such as marketing, supply chain management,
manufacturing, and selling, There is a need to find a piece of software that can help to centralize
the entire business.

That’s why many manufacturing businesses turn to multichannel sales inventory production
management software to overcome the manufacturing challenges of having total control. This
helps to streamline the productions and manage the multiple sale channels.

Increasing revenue and sales

Increasing revenue and sales will always be an issue at every stage of the business.

However, the more the firm grow, the trickier it becomes to increase the revenue and sales. One
of the challenges manufacturing industries face when scaling is considering how to refine their
production workflows in response to the increasing quantity of manufactured products.

When the sales start to increase, there will be a need to do constant evaluations on the business’s
performance to determine if there is any way to improve the manufacturing processes to
compensate for the increased workload.

This could be as simple as analyzing the inventory to determine if there is a need to practice a
different method for storing material.
Also the review on the industrial production and costs in less developed countries it explained on
covering the three important things which are production and costs functions, economies of scale
and to describe production efficiency, static and dynamic. Therefore the following are the
detailed review on industrial production and costs in developing countries like Tanzania;

A. Explain production and costs functions:

Production:-The production as the factor of production it explained in economic and general

meaning, in general meaning production is a creation of goods and provision of services for
personal consumption. For example, a carpenter who produces furniture for personal use but not
for sale.

In economic meaning, production is the creation of goods and provision of services for exchange
in order to satisfy wants or is the creation of utility/satisfaction through exchange. For example a
farmer who produces cash crops, private hospitals which provide medical services for sale.

Production Function

The production function is a mathematical and technical relationship between output produced
and the factor of production used to produce the output. A production function shows maximum
amount of output produced by certain amounts of factors of production given the existing
technology or state of art.

The Production function can be expressed into three forms or categories;

i. Form of a chart or table

The production output and units are represented into the form of chart or table which include the
unit of input to be produced and output to be produced into the form of chart or table.

ii. Form of a graph

The production function it can be represented into form of the graph
where by the output and input units of the production it is involve in the graph into the
presentation.
iii. Form of equation
The production function it is involve the equation on the input and output
units in order to present the relationship between output and input function. Example of
production function is;
Q = Output f (L1K)
Whereby;
F = Function of (depends on)
L = Labour units
K = Capital units
Factors that determine or influence the production function;
Quantity of resources available. The larger the amount of input used in the production
process, the larger the amount of output will be produced, therefore the amount produced
depend the input used in production.

State of technology. Technology improves efficiency of work and leads to high output.
The size of the firm. Large firms have the ability to produce large amount of output due
to large amount of resources and the use of advanced technology while small firms may
not produce large amount of output due to limited resources and technology.

Price of factors of production. Price of factors of production determines the choice of

factors of production, prices of factors of production are relatively low producers will
employ more units of input which will increase output.

Political and social stability. A stable political and social situation in a country provides a
conducive environment for growth of economic activities and investment, and therefore
leads to the increase in output.
Infrastructural facilities. Lubricants of economic activities or infrastructures such as
transport, communication, electricity, water supply facilities, banking and insurance
enhances the growth of various economic sectors such as industry, agriculture, tourism
and trade.
Cost of Production:
Is the total cost incurred by a business to either produce a product or offer their services.
Production costs typically include supplies and raw materials that are consumed during
production, along with labor expenses.
Cost Function:
Cost function refers to the functional relationship between cost and output. It studies the
behaviour of cost at different levels of output when technology is assumed to be constant.
It can be expressed as below:
C= f (Q)
(Here, C= Cost of production; and Q= Quantum of output).

B. Explain economies of scale.

Economies of scale refers to the advantages or benefits obtained by a firm from the
expansion in production. With the rise in the production the cost per unit falls and the
firm benefits.
There are two types of economies of scale namely;
1. Internal Economies of scale.
An internal economy of scale measures a company's efficiency of production.
That efficiency is attained as the company improves output when the average
cost per product drops. 
The following are the internal economies of scale;
Financial Economies. When a firm expands its size of production it becomes
possible for the firm to obtain financial assistance from banks at a lower rate of
interest because of its assets which may act as security for securing the loans.
Also
when a firm expands its size of production, it can increase capital by selling
shares to the public.

Marketing Economies. When a firm expands production it can acquire necessary

resources for marketing its products through advertising. Also, the unit cost of
marketing large output is smaller than of smaller output for example if it costs
Tsh.400,000 to advertise juice products in a TV for two minutes, a firm which
 produces 30 crates per day will pay the same advertisement cost as a firm which
produces 60crates per day.

Technical Economies. When a firm expands, it also expands its machinery

capacity. In this case, a firm can be able to produce large amount of output. Also
larger machinery permits specializationof workers enabling them to gain skills,
avoid time wasting interchanging of locations and equipments these will lead to
reductions of unit costs and increase in output.

Economies in Administration. There will be economies in administration since an

increase in output will not necessarily lead to increase in number of office staff,
the
large firm too can still utilize the existing office machinery and therefore incur
almost the same administration cost.

Research Economies. An expanding firm can easily make research on modern

technology advancement .which enables the firm to improve output and to reduce
unit cost.

Economies in the Use of Factors of Production. There can be economies in the

use
of factors of production since to increase output by a certain amount may not
necessarily require employment of extra input by the same proportion, for
example, a farmer can double output by applying better methods of cultivation
and
modified seeds without increasing acres of land and more labour force.

2. External economies of scale.

External economies of scale are generally described as having an effect on the
whole industry. So when the industry grows, the average costs of business drop.
External economies of scale can happen because of positive and negative
externalities. These are economies, which are obtained by all the firms in a
particular industry due to localization or agglomeration that is concentration of
many firms in one area.
The following are the external economies of scale;
Infrastructural Facilities. When firms expand production in a certain area it can
lead to the development of infrastructure for example roads and communication.
networks, as a result all the firms in that area will benefit.

Availability of Factors of Production. When firms have concentrated in a certain

area, it can be ease to obtain factors of production such as raw materials, skilled
labour and machines, these inputs may be supplied by firms that are found in that
area.

Decrease in the Cost of Production. Some costs of production like transport costs
and wages may be reduced when many firms operate in a given area, for
example, when there is improvement of road transportation all the firms will
benefit and the cost of transportation will decrease.

Government Assistance. Firms which are localized in a certain area may enjoy
various assistance which can be provided by the government. For example, tax
relief, subsidies, protection through import control infrastructure such as
electricity and water supply systems and roads.

Regional Division of Labour. When an industry is localized in a certain area it is

possible for each firm to specialize in a certain process of production and enjoy
economies of scale by selling its products to other firms for example plastic
recycling that produce many plastic equipments.
Diseconomies of Scale;
These are the disadvantages that firms or industry experience when expanding
the scale of production that is when a firm grows bigger it experiences several
problems known as diseconomies of scale. These diseconomies of scale are as
follows:-

Increase in Costs. The increase in costs of distributing the large amount of output
it produces, the increase in costs of operation and administration, the increase in
amount of money for wages of the additional staff, the increase in costs of
marketing its amount of output through advertising, market research and sales
promotion.

Difficult in Controlling Production. As a firm expands it produces large amount

of output which may be difficult to be controlled by the management, this may
lead to wastage of some resources in the production process, theft, lower
availability of goods produced and overproduction.

Difficulty in Management and Controlling of Labour. As a firm becomes bigger

it employs more units of labour who become very difficult to control hence the
need for additional supervisors which increase costs.

Marketing Diseconomies. As a firm expands it produces large amount of output

which may bring problems in finding market in which case the firm may be
forced
to use a lot of its resources to market the products. The resources will be used in
advertisements, sales promotion, market research and distribution facilities.

Financial Diseconomies. As a firm expands it needs additional funding or

working capital which may not be readily available and therefore force a firm to
borrow from financial institutions, this will increase the burden of debt in terms
of interestrate.
 Technical Diseconomies. Expanding the size of the firm may mean employing an
advanced or sophisticated technology, which may be very expensive to buy and
to
operate. Also, after a certain time the machines will undergo wear and tear,
which
will cost the firm a lot of money.

Diseconomies of Division of Labour. Increase in the size of the firm

necessitates
the need of division of labour and specialization which may lead to increase in
costs of paying specialists who are employed in different areas of specialization
or
processes.

Economies of scope:-
Economies of scope describe situations where producing two or more goods
together results in a lower marginal cost than producing them separately.
Economies of scope differ from economies of scale, in that the former means
producing a variety of different products together to reduce costs while the latter
means producing more of the same good in order to reduce costs by increasing
efficiency.

C. Describe production efficiency, static and dynamic.

Production efficiency: Production efficiency is an economic term describing a
level at which an economy or entity can no longer produce additional amounts of
a good without lowering the production level of another product. 
In economics, the concept of production efficiency centers around the charting of
a production possibility frontier. Economists and operational analysts will
typically also consider some other financial factors, such as capacity utilization
and cost-return efficiency when studying economic operational efficiency.
The Central bank Reserve like BOT provides a monthly report on industrial
production and capacity utilization, which can be helpful in understanding
production efficiency for the manufacturing, mining, electric, and gas utilities
sectors.

Production static:
In economics, production static refers to a situation where there is a movement.
But this movement is continuous, certain, regular and constant. Static production
does not deal with the unexpected changes. It studies only the expected economic
activities. There are no windfall changes or fluctuations in economic activities.
According to Prof. Harrod, “An economy in which rates of output are constant is
called static.”

Production dynamic:
Production dynamics is concerned with fluctuations in the economy where by
production exhibit perpetual fluctuations over time under ceteris peribus. These
fluctuations are characterized by sustained growth of production as well as large
oscillations in relative changes or growth rates.
The fluctuations vary from fairly regular business cycles in macroeconomic
variables to very irregular fluctuations for example in stock prices and exchange
rates, in financial markets. In this note we discuss some approaches to the theory
of economic fluctuations, emphasizing the role of non-linear dynamic models.
REFFERENCE:

Charles, H. (1977). Macro Economics for Africa. London: Heinemann.

OECD (2022), Industrial production (indicator). doi: 10.1787/39121c55-en (Accessed on 26

May 2022)

www.investopedia.com/ Retrieve on 26.05.2022