3.6 Firms and production

Question 1

What is production

Answer 1

Refers to the total output of good sand services being produces in the production process

Question 2

What is productivity

Answer 2

Measures the amount of output (goods and services) that can be produced from a given input (land, labour,c capital resources)

Question 3

What is the labour productivity

formula

Answer 3

Measuring effiency of workforce in terms of output per worker

total output/total workers

Question 4

What are the impacts of high productivity

Answer 4

Economic growth
Lower unemployment - govt gets more traxes, has to pay less unemployment benefits
Higher wages - better standards of living
Improved competitiveness within firms

Question 5

What is a chain of productive activities

Answer 5

Productive tasks taking place one after the other

Question 6

How can productivity be increased (in general

Answer 6

More output or revenue from the same amount of resources

Same output or revenue from lower level of resources

Question 7

Another (better) way to measure labour productivity

name
formula

Answer 7

Average revenue product of labour

Total revenue per period/total number of employees

Question 8

What does measuring productivity miss out on

Answer 8

Misses out on the quality of the output

If quality falls, and output rises - consumers would go to rival firms

but if quality rises and output remains the same - consumers may be willing to pay more which increases total revenue and profit.

Question 9

Concrete ways to improve productivity in a firm

Answer 9

Training - new skills + improve curr skills

Performance-related pay - rewards increases productivity

More efficient plant, machinery and tools for workers to use

Increase job satisfaction - include employees in decisions, allow team projects, 2 way communication, etc.

Buy shares in the organization - if productivity is increased then profits will increase which means higher dividends

Question 10

What is lean production

Answer 10

Intro of new production processes that are designed to continually reduce waste, increase speed, improve qual, and increase output in all areas of a firm.

Question 11

Analysis of the ways to improve productivity

does it benefit the firm to employ these methods

Answer 11

Most of the ways would increase the cost of employing labour in the short term.

but if productivity increases - average cost of producing each unit of output will fall and profits will tend to rise. Lower costs can be passed on to customers which would increase customer demand and generate more sales revenue, increase market share, etc.

if the demand for a product increases then the demand for labour may increase as well

Question 12

What are the two methods of production

Answer 12

Labour intensive

capital intensive

Question 13

Characteristics of capital intensive
what types of firms use
main use

Answer 13

Requires more capital than labour

Used by many modern firms
Partially or fully automated production process

main use: mass produce similar or identical products faster and cheaper than workers could by hand.

Question 14

Characteristics of labour intensive
what types of firms use
main use

Answer 14

Requires more labour than capital

Used in service industries and agricultural sector

Main aim: personalized services and items that are hand crafted

Question 15

Adv and disadv of capital intensive
2 each

Answer 15

adv
Products can be mass produced if market size is large
Reduces average cost of producing each unit
wages and employment costs are lower
automated production is continous
Programmed equipment cannot lose skill or concentration - less human error and product quality is more uniform

disadv
Expensive to hire or purchase
maintainance cost could be high
training cost for workers to use machinery could be high
Breakdowns and power cuts will halt production
Not suitable for custom-made products
Can be difficult to change production if demand or tech changes once a firm has installed significant amount of machinery and equipment

Question 16

Adv and disadv of labour intensive

Answer 16

Adv
could pay a premium price for handmade and more personalized products
lower risk of losses due to machinery breakdowns or power cuts halting production
More mobile than machinery and can be used more flexibly
Product quality is easier to observe, monitor and change at each stage of the production process

diasdv
wages and employment costs could be high
Industrial action from trade unions could disrupt production
workers may have to be retrained with new skills as consumer demand changes
best suited to small scale production or production of personalized products

Question 17

Determinants of demand for factors of production

Answer 17

Consumer demand for products - all factor demands are derrived demand - The more goods and services consumers want and are willing and able to buy,
the more factors of production firms will need to produce them.

Factor prices - if wage rates are high - demand for labour will contract. if capital is expensive - demand for capital will contract. if capital is cheap - firms may cut their workforces and buy capital

factor availability - shortage of skilled labour = increased wage rates for them.

Factor productivity - firms would only hire labour if they add more revenue and output than the wage rate.

Question 18

What is factor substituion

Answer 18

Replacing labour in a production process with new capital equipment and machinery.

Question 19

What is CAM

full form

Answer 19

Computer aided manufacturing

Question 20

Consequences of factor substituion

Answer 20

The costs of installing and maintaining new machinery and other equipment can also be very expensive

Short-term production costs may also rise - High retraining costs of workers to use new machinery

bitter labour disputes - between trade unions and their employers over possible job losses.

Strikes by workers and redundancy payments for those forced to leave can be very expensive for a firm.