2.3 Flashcards
what does the long tail mean?
specific and niche goods that are in less demand can produce an effective market as they have a big enough distribution channel
what does the long tail allow?
consumers to compare prices more easily
what is productivity?
a measure of efficiency in the use of resource inputs
it is the output per unit of input in a given time period
what is efficiency?
the use of scarce resources in the most economically achievable way, costs can then be minimised which means competitive advantage could be achieved
what are the 6 factors influencing productivity?
R&D
educating and skills training
infrastructure
new tech
management skills
investment
what is infrastructure?
all public available services such as transport, communication facilities, basic services such as water drains and energy supplies and also telephone systems, bridges ports and airports
what does increasing productivity mean?
using fewer resources to produce more, so unit costs fall, prices can be cut, sales rise, then profits increase and the product is more competitive
what happens when output per worker increases?
worker’s contribution to firm revenue increases causing demand for workers to increase also
what happens as wages are determined by supply and demand?
an increase in demand will imply an increase in wages, so if we produce more we may get paid more so productivity is closely related to standards of living and economic growth
what is GDP?
the most common measure for the size of an economy, it measures the value of total final output of goods and services provided in a period of time by that economy
what does increasing efficiency often require?
investment in human capital ie training people and encouraging them to acquire new skills, this can be quite costly but has enormous potential to raise productivity, it applies to almost all aspects of the work of the firm
what is capacity?
the amount something can produce
what is capacity utilisation?
measures the extent to which the capacity of the firm is in use taking actual output as a % of total capacity
what is under-capacity utilisation?
demand is insufficient to justify working at full capacity
what is over-capacity utilisation?
when demand grows, some firms seek to stretch output without adjusting their capacity
what is the formula for capacity utilisation?
current output / full potential output x 100
what does capacity utilisation measure?
how much of the maximum possible output is produced
what are causes of low capacity (supply and demand)?
supply:
new competitors
demand:
product less fashionable
seasonal product
income elastic in a recession
what are the consequences of low capacity?
high fixed costs per unit reducing profitability
if visible could give a poor impression
underused staff
is low capacity a problem (long-term and short-term)?
long-term = yes because high FC/unit will make the firm uncompetitive
short-term = possibly not because the firm can react quickly to an order (useful if expanding) and there is time for maintenance and staff training
why is full capacity a positive?
because FC/unit are lower
why is full capacity a negative?
there is no time for maintenance which could lead to breakdowns
it is also not possible to take on unexpected orders and the only way to increase output is to buy a new machine
what percentage capacity utilisation is optimum?
85-90%
what are the 4 ways to increase efficiency?
lean management
JIT
kaizen
TQM
what is kaizen?
continuous improvements
what does TQM mean?
when quality is seen as the responsibility of all employees, each employee is a link in the chain and treats the next link as if they were an external customer, they will pass the product on only if it’s correct, there is a philosophy of get it right first time
why is quality important?
it can help achieve lower unit cost through less waste
positive image to consumers: reputation, positive word of mouth
USP
pricing decisions
improved competitiveness
what are the positives of QC? (5)
quality can be monitored
stops faulty products reaching customers
common problems can be identified
inspector takes responsibility
often a robust system
what are the negatives of QC? (4)
waste levels may be high
problems only identified at end of process
requires specialist/additional personnel
takes responsibility away from operatives
what is quality assurance?
the checking of a product or service at each stage of production; self checking
what are the positives and negatives of QA?
+ greater responsibility, more motivation
+ lower wastage levels, faults identified earlier
- relies on commitment of all employees
- additional training costs
what are the hidden costs of poor quality (the iceberg analogy with examples?
as an organisation gains a broader definition of poor quality e.g. tip = rework, waste, inspection costs
underwater = overtime, planning delays, unused capacity
how is QC relevant nowadays?
it is ingrained into production processes, the people making the product are responsible for quality, the info age has made this all the more important
why are EOS important?
they mean that as firms increase in size, they can become more efficient for certain industries with significant EOS e.g. aeroplane manufacturer, it’s important to be large or you will be inefficient
what is BEP?
the point at which TC=TR after all costs are paid for there is neither profit nor loss
what does high efficiency mean?
less costs and less waste
how does production efficiency directly affect costs and revenue?
by reducing the cost of production and potentially increasing revenue
what does production efficiency refer to?
a situation where the maximum possible output is being achieved by an entity with a given set of inputs, this concept is crucial in economics as it directly impacts the costs and revenue of a firm
what are the 8 types of EOS?
technical
specialisation
bulk buying
marketing
risk bearing
container principle
financial
external
what are the 4 types of DEOS?
technical
organisational
external
financial
how do you calculate BEP?
FC / (SP - VC) or
FC / cont
what is product lead times?
time between the design of a product and its production
the time from the placing of an order to the delivery of the goods
what does a PPF show?
all the possible combinations of 2 goods we can produce using our resources efficiently
what is a point outside a PPF?
something impossible / unattainable as not enough resources
what is a point inside a PPF?
something not productively efficient
what is a point on a PPF?
productively efficient
what is opportunity cost on a PPF shown by?
the difference in the axis from point A to point B, if the PPF is straight there is constant opportunity cost
if not told whether constant opportunity cost or increasing draw a?
PPF with increasing opportunity cost
is deciding a point on a PPF a positive or normative statement?
normative
what are consumer goods?
goods we consume e.g. pizza
what are capital goods?
goods that produce consumer goods e.g. oven
what happens if money is put into capital goods?
there will be a shift outwards of the PPF and therefore greater economic growth
