At higher levels of output the firm can employ more specialised factors of production,
both labour and capital. The advantages of such specialisation are well known and were
analysed by Adam Smith as long ago as the eighteenth century, when he outlined the
advantages of the ‘division of labour’ in the manufacture of pins. Specifically, with each
worker undertaking just one of the tasks involved in production, productivity was
enhanced.Workers did not need to move between tasks, repetition of a task improved performance,
and management could allocate tasks relative to the inherent skills of individual
workers. This same principle can be seen in modern production line technologies. Similar
advantages are also found in the division of managerial tasks. For example, as a small firm
expands, the owner/manager, who initially might undertake a general management function
encompassing finance, production, marketing and personnel, is now able to employ
specialists with specific management skills. The owner can now concentrate on that function,
perhaps production design, where his/her comparative productivity is greatest.
The same advantages of specialisation can be seen in the employment of capital.
Specialised capital equipment might only be economically justified at high volumes of
output. For example, a small manufacturer might have to utilise a single average-sized
forklift truck which might be too large for certain tasks and too small for others. The
firm could not justify the purchase of a range of trucks with differing capacities and
capabilities as they would not be sufficiently utilised. However, a larger concern could
justify such a purchase.
The epitome of capital specialisation is seen in production line technologies utilising
highly specialised capital equipment dedicated to individual productive tasks. There can,
however, be disadvantages in capital becoming too specialised as this might not allow the
firm sufficient flexibility in production to cater for changing market demands. In fact,
rather than producing large volumes of a standardised product, the firm may seek the
ability to produce a variety of output, each batch of output possessing particular charac-