Chapter 21- Firms and production

Question 1

What FOP are employed?

Answer 1

labour and capital

Question 2

What is the employment of the FOP influenced by?

Answer 2

type of product produced- capital or labour intensive
productivity of the factors- output per hour or unit
the cost- which one out of labour/ capital is cheaper in the long run

Question 3

Relations in FOP

Answer 3

substitutes: rise in cost, rise in productivity (substitute one FOP with the other)
complements: rise in cost, rise in productivity (rise in one FOP would cause a rise in the output or cost of the other too)

Question 4

altering the FOP

Answer 4

short run: 1 fixed FOP- land cannot be altered

long run: all FOP can be altered

Question 5

combining the FOP

Answer 5

it’s important to achieve the right combination of the FOP so that firms have the highest possible productivity and are as efficient as they can be

Question 6

factors influencing demand for capital goods

Answer 6

• price of capital goods
• profit levels- higher profits, more investment
• corporation tax- lower tax, more money
• disposable income- derived from consumers, increase the no of goods
• interest rates- lower interest rate, more money
• confidence
• advancement in technology

Question 7

factors that affect productivity (per unit output) in a firm

Answer 7

• manpower
• equipment and machines
• time
• floor area or space
• movement of man and materials- flexibility and re-allocation of resources

Question 8

demand for land

Answer 8

fertile land = more demand (agricultural sector), prices are higher

Question 9

FOP and sectors of production

Answer 9

FOP: land, labour, capital and enterprise
Sectors: primary, secondary, tertiary and quaternary

Question 10

labour and capital intensive

Answer 10

labour intensive: supply of labour, small producers, custom made products/ more demand, flexible workers, can provide suggestions, price of capital is more

capital intensive: advancement in technology, lower average cost, no unions, no days off

Question 11

production and productivity

Answer 11

production: the organised activity of transforming physical inputs (resources) into outputs (finished products) which will satisfy the products’ needs of society
productivity: the ratio of what is produced to what is required to produce it, measured in terms of output per unit of input