Commercial World

Lesson Objectives
Students to be able to identify:

• What is commercial world and services?

• Various terms associated with production
• How utility is created?
• Difference between needs and wants
• Factors of production: • land • labour • capital • enterprise.
• Industrial sectors/branches and commerce: • chain of production: 1) primary sector 2)
secondary sector 3)tertiary sector • the relationship between businesses in the primary,
secondary and tertiary sector • the relative importance of each sector within countries.
• Location of agricultural and manufacturing units
• Various forms of Specialisation
• What is Division of labour & its advantages & disadvantages
• Types of trade & Aids to trade
• Economies of Scale -Average cost, Fixed Cost and Variable Cost
https://youtu.be/OVjaOF5qVjc
https://www.youtube.com/watch?v=TubOzvqOCmI
https://www.youtube.com/watch?v=Meo0s54s1sw
https://www.youtube.com/watch?v=MkfXKQFCuxE
https://youtu.be/SesexV9ikzw
https://www.youtube.com/watch?v=EfIi79C18aE
https://youtu.be/h2UzR6IqmXg
https://youtu.be/OTXW1RVZZPs -Aids to trade
https://youtu.be/n9bbHJJBjU0
https://youtu.be/RSyvcANRaOE
https://youtu.be/VZD7dTSHmIo
https://www.investopedia.com/terms/f/factors-production.asp
https://youtu.be/rYvzM_tayY4

Economies of Scale Definition

• Economies of scale occur when a business benefits from the size of its operation. As a
company gets bigger, it benefits from a number of efficiencies. For example, it’s far cheaper
and efficient to serve 1,000 customers at a restaurant than one. You have staff costs, the cost
of rent for the land, and perhaps any advertisement costs. As a business, you don’t want to be
paying staff to sit idle, nor pay thousands in rent just to serve one customer.
• As a company grows, its unit costs decrease. In other words, it costs less to produce an
additional good or service.
• An important part of economies of scale to understand are fixed costs. These can take up a
significant part of a business’s expenditures. For example, the airline industry has significant
fixed costs. It must pay for the airplane, the hire of the airport, and contracted salaries. Its
costs are the same whether it has one passenger or 200. So when an airline grows bigger, it is
able to attract more customers and thereby reduce the cost per customer.
• For example, an airline may invest $20 million into a new airplane. If it serves one customer, it
must charge $20 million to recoup its costs. However, if it serves 1 million customers, it only
needs to charge $20.
• If we take another example. Businesses benefit from economies of scale when long-run
average costs fall as production levels rise. Lower unit prices occur as a result. For example, a
factory will be able to produce 1,000 cans of tuna at a far lower price per can than one. So in
short – the more a business produces, the lower it costs them, and in turn, the lower it can
charge customers.
Fixed and Variable Expenses
• Just like we have fixed and variable expenses, the businesses have
Fixed and Variable costs.
• A fixed cost is a cost that does not change with an increase or
decrease in the amount of goods or services produced or sold.
• Variable costs increase or decrease depending on a company's
production volume; they rise as production increases and fall as
production decreases.
Total Cost= Fixed cost + Variable Cost
Cost per unit/Average Cost= Total Cost/Number of units produced
• Economies of scale are cost reductions that occur when companies
increase production. It is falling average cost due to expansion. This
is because some costs do not change with the increase in units of
production as they are fixed costs.
• For example: A factory that produces 100 wooden tables has the
following monthly costs:
• Fixed costs: Rent= $ 2000, Advertising cost= $500
• Variable costs: Labour wages=$2000, Raw materials= $1000
• Average cost= 2000+500+2000+1000= $55 per unit
• 100
• The factory decides to increase its production to 200 tables.
The fixed cost will still stay the same and only the variable
costs will change. The new costs will be:
• Fixed costs: Rent= $ 2000, Advertising cost= $500
• Variable costs: Labour wages=$4000, Raw materials= $2000
• New Average cost= 2000+500+4000+2000= $42.50 per unit
• 200
• So you can see the cost per unit has fallen with increase in
production.
• https://www.youtube.com/watch?v=rYvzM_tayY4
Practice Questions
1) Choose the correct needs.
• Shelter, Clothing, Rice, Technology
• Food, Shelter, Clothing, Water
• Food, Clothing, Shelter, Car
• Health, Safety, Railways, Phones
2) Which of the following is not a commercial service?
• Finance
• Insurance
• Teacher
• Communication
3) Which one of the following is a reason why specialist workers might get bored?
• The training takes too long
• Tasks can be very repetitive
• The pay is low
• There is no opportunity to make friends at work
4) Oil extraction in Nigeria is an example of commercial activity in which sector?
• Primary sector
• Secondary sector
• Tertiary sector
• None of the above
5) Thailand specialises in production of rice. This refers to which type of specialization?
• Country
• Home
• Firm
• Organisation
 Structured Questions.
Write the best answer for each question.

6) Define commerce
7) Briefly explain all three sectors involve in chain of production
8) Explain two advantages and two disadvantages of division of labour
9) Explain 2 forms of specialisation.
10) Using example explain the meaning of economies of scale.
11) With the help of example explain the difference between the fixed cost
and the variable cost.
12) What are the three factors of production?
13) What are the three branches of production?
14) Explain the factors that determine the location of agriculture units.
15) Explain the factors that determine the location of manufacturing units.