3.6 Firms and production Flashcards
What is production
Refers to the total output of good sand services being produces in the production process
What is productivity
Measures the amount of output (goods and services) that can be produced from a given input (land, labour,c capital resources)
What is the labour productivity
formula
Measuring effiency of workforce in terms of output per worker
total output/total workers
What are the impacts of high productivity
Economic growth
Lower unemployment - govt gets more traxes, has to pay less unemployment benefits
Higher wages - better standards of living
Improved competitiveness within firms
What is a chain of productive activities
Productive tasks taking place one after the other
How can productivity be increased (in general
More output or revenue from the same amount of resources
Same output or revenue from lower level of resources
Another (better) way to measure labour productivity
name
formula
Average revenue product of labour
Total revenue per period/total number of employees
What does measuring productivity miss out on
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.
Concrete ways to improve productivity in a firm
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
What is lean production
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.
Analysis of the ways to improve productivity
does it benefit the firm to employ these methods
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
What are the two methods of production
Labour intensive
capital intensive
Characteristics of capital intensive
what types of firms use
main use
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.
Characteristics of labour intensive
what types of firms use
main use
Requires more labour than capital
Used in service industries and agricultural sector
Main aim: personalized services and items that are hand crafted
Adv and disadv of capital intensive
2 each
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
Adv and disadv of labour intensive
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
Determinants of demand for factors of production
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.
What is factor substituion
Replacing labour in a production process with new capital equipment and machinery.
What is CAM
full form
Computer aided manufacturing
Consequences of factor substituion
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.
