2.6 Production

Question 1

What are producers responsible for?

Answer 1

the supply element of supply and demand

Question 2

What is meant by productivity?

Answer 2

one measure of the degree of efficiency in the use of factors of production in the production process. It is measured in terms of output per unit of input

Question 3

What is an increase in production likely to bring about?

Answer 3

• an increase in employment
• an increase in profits for the firm and industry
• larger economies of scale
• an increase in market share if the production of one firm increases against that of other firms
• economic growth for the economy
• a rise in the standard of living as consumers have more choice of goods and services to buy

Question 4

What is the formula to measure productivity?

Answer 4

productivity = total output / total input

Question 5

What does productivity depend on?

Answer 5

it depends on improving the inputs to the production process. This may be achieved by investing in better equipment, such as improving the quality of the machines. It can also be improved by better training and education for the workforce. This could increase their skill and knowledge, making them better at doing their job which increases productivity.

Question 6

What is another way a manufacturer can increase productivyt?

Answer 6

by finding better-quality raw materials

Question 7

Why is high productivity important for individuals?

Answer 7

because higher productivity is likely to be rewarded with higher wages and an increase in the standard of living

Question 8

Why is high productivity important for firms?

Answer 8

because higher productivity will result in:

• lower average costs and increasing economies of scale. This makes the firm more competitive so that it can then lower its prices and/or compete more effectively on a world scale. This will benefit the economy by increasing GDP through greater exports and consumption. This also improves the balance of payments
• greater profits, allowing the firm to offer higher wages to attract the best workers, and the reinvest in new equipment and research. Investment will again increase competitiveness and GDP. Higher wages will benefit the economy as there will be more people motivated to get qualification and improve their skills, which further increases productivity.

Question 9

Why is high productivity important for governments?

Answer 9

governments will benefit through economic growth as:

• higher productivity increases the total output of the economy. This is likely to lead to an increase in employment and higher wages, which then leads to greater tax revenue for the government
• more competitive firms will lead to greater exports and thus further economic growth

Question 10

What are the 2 costs of productivity?

Answer 10

increased productivity can create costs for the economy such as:

• if a firm increases productivity using capital equipment instead of labour, this may increase unemployment. This will mean the government will have to spend more on unemployment benefits and it will receive less tax revenue since less people will be paying taxes
• increased productivity leading to greater international competitiveness, may lead to other countries retaliating, which can cause fall in GDP

Question 11

How can firms increase productivty?

Answer 11

by:

• workers specialising in part of the production process
• investing in new technology and more capital equipment
• improving the skills of the workers through training

Question 12

What is the formula for average cost?

Answer 12

average cost = total cost / quantity

Question 13

What does a fall in average cost show about the firm?

Answer 13

it shows the firm is becoming more efficient

Question 14

What is the formula for average revenue?

Answer 14

average revenue = total revenue / quantity

Question 15

What generally happens to production costs as output increases?

Answer 15

production costs generally rise as output increases

Question 16

Why is revenue important for producers?

Answer 16

• growth in revenue encourages investors to invest more money into the firm, which allows producers to expand further, buy new equipment, etc
• steady levels of revenue allow producers to secure loans and favourable interest rates over drafts. Having the ability to run an overdraft means that producers do not have to worry so much in the short run about whether they will be able to pay suppliers, workers, etc
• it creates worker, business partner, etc confidence in the firm. For example, if a firm is making high revenue then workers are more likely to remain in the firms employ and suppliers may feel more able to supply the producer with goods and allow it to pay later

Question 17

What is the importance of profit for producers in a market economy?

Answer 17

profit is important for producers in a market economy because:

• it generates finance for investment (retained profits)
• it acts as a signal and tells other producers that they too might be able to make a profit in that marker
• it allows a producer to attract more resources to the firm or industry

Question 18

What are the 9 different types of internal economies of scale

Answer 18

technical economies, economies of increased dimensions, purchasing or bulk-buying economies, division of labour, financial economies, managerial economies, marketing economies, risk-bearing economies, and research and development economies

Question 19

What is meant by external economies of scale?

Answer 19

those that a firm benefits from as a member of an industry or because of its location, they are due to factors outside the direct control of the business