Chapter 5

Question 1

Describe the 6 Factors of Production.

Answer 1

1. Natural resources

Materials supplied by nature from which everything in the world is
made.
Six types of natural resources that primary industries supply us with
Are: Agriculture, fishing and trapping, mining, water, fuel and energy, logging and forestry.

2. Raw materials

Raw materials are any goods used in the manufacturing of other goods.
1. Ingredients ― raw materials that are combined or converted and become
a part of the finished product.
2. Supplies ― raw materials that do not become a part of the finished
product, but are used in the product creation process.

3. Labour

Labour includes all of the physical and mental (cognitive) work needed to produce goods and services. Labour is expensive so most businesses seek ways to save on labour costs such as:

Automation:
means that many tasks are performed by more them one person using machines.

Consolidation:
occurs when many small manufacturing sites close down and are centralized into one large site.

Outsourcing:
the hiring of another company to perform tasks for any company

4. Capital

Capital is the money invested in the business and is often referred to as monetary capital.
TYPES OF CAPITAL:

a) Liquid
Capital can be transformed into other things at any time, with minimum effort. EXAMPLE: Cash, stocks, bonds, accounts receivables

b) Non-liquid
Some capital cannot be converted into liquid capital easily which makes them harder to spend. EXAMPLE: buildings or equipment and intellectual property Intellectual property: the ideas or the talent of a business’ workforce (non-tangible form of capital)

5. Information

To produce goods and services in a competitive global market, businesses require more information about 5 key areas:
-New technology
-Customers
-Competition
-Political conditions
-Sources of supply

Accurate and usable information reduces a business’ risk and can enhance its profitability.

6. Management

Management consists of the people who run the business and control or direct the factors of production.

Management also allocates company resources and makes decisions that affect the day-to-day and long-term operations of the business.

Large companies: higher-level managers and/or the board of directors make decisions regarding profit distribution.

Smaller business: a single business manager or owner may make all of the business decisions.

Question 2

Describe the 4 Stages of Production.

Answer 2

➢Purchasing

Within a business, someone is responsible for purchasing the raw materials needed to produce the product or service.

Purchasing Department
Purchasing Agent
Buyer
Owner

Considerations when making purchasing decisions include
✓ quality of the raw material purchased
✓ price of the raw material purchased
✓ any additional costs associated with the
purchase of the raw material

➢Processing

All non-service businesses convert one item into another through Processing.

Refining:
A process used to convert raw materials into a semi-finished or finished
products.
❑ bauxite → aluminum
❑ sugar cane → sugar
❑ flour → wheat
❑ timber or logs → paper

➢Quality Control

Standards used to ensure all produced products conform to prescribed levels of excellence.
These standards are set by:
➢ the company
➢ the government
➢ other organization
▪ International Organization for Standards (ISO).
▪ Sets worldwide standards for numerous industries in 157 countries

➢Grading

The act of checking products for size and quality against fixed standards for the product or product category.
❑ allows consumers to make informed purchasing decisions
❑ related to quality control “SECONDS”
❑ Products not formally graded.
❑ do not meet manufacturer’s standards
❑ often sold as containing slight defects (i.e. towels or sheets) “SCRATCH AND DENT” SALES
❑ Products with surface damages
❑ sold at reduced prices (i.e. appliances)

Question 3

Describe the 4 ways a company can improve or maintain Productivity.

Answer 3

increase in productivity results in an increase in profit.
Increased productivity consists of the following:
* maintaining quality while increasing speed
* increasing quality while maintaining speed
* increasing both quality and speed at the same time

Training
Training programs that develop a person’s knowledge and experience are essential in the development of a productive employee.
Four Major Types of Training
1. Initial training
2. Ongoing training
3. Retraining/new job
4. Specialized training
Capital Investment

Capital Investment
Investment of capital into things, such as new computers, machinery, buildings, and facilities,
contribute to increased productivity.

Investment in Technology
Utilizing up-to-date technology enables companies to maintain and improve upon their competitive edge. Robotics and automation, the use of computer-controlled machinery to perform repetitive tasks, is another way companies can improve productivity.

New Inventory Systems
Just-in-time (JIT) inventory systems allow businesses to coordinate suppliers, monitor warehouse storage, and keep track of factory production to deliver goods on time. Requiring up-to-date statistical information, this system saves time, money, space, and reduces waste to increase productivity. Benefits include having the right material, at the right time, at the right place, and in the right amount.