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CMA Foundation · Fundamentals of Business Economics and Management · Means of Production

A small firm's output per worker rose when it moved from 5 to 20 workers because of specialisation, but its owner notes that further division of work beyond 20 workers yields no gain as coordination becomes difficult. Which statement best reflects the limit on division of labour illustrated here?

Division of labour is limited by the extent of the market and by coordination problems. When work is split among too many people, managing and integrating tasks becomes hard and gains stop, which the firm observed beyond 20 workers. Higher wages or land alone do not remove this limit.

  1. ADivision of labour is limited by the extent of the market and by problems of coordinationCorrect
  2. BDivision of labour has no limit if wages are raised
  3. CDivision of labour is limited only by the availability of land
  4. DDivision of labour always reduces the need for management

Explanation

Division of labour is limited by the size of the market (demand must justify large-scale output) and by managerial and coordination difficulties, as in the case. Wages and land alone do not set its limit, and specialisation actually increases the need for coordination, not reduces it.

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