Labour vs. Capital

Question 1

What are the 4 factors of production?

Answer 1

Land, labour, capital and enterprise

Question 2

How should a business choose one of these factors to focus on?

Answer 2

• land and enterprise had no relation to the others

- labour and capital are interchangeable and a business needs to decide how much to use of each

Question 3

What is labour and capital intensity?

Answer 3

Labour intensive - production relies on using labour resources
Capital intensive - production relies on using capital resources

Question 4

What are some examples of labour/capital intensive industries?

Answer 4

• labour intensive: food processing, hotels and restaurants, fruit farming, hairdressing, and coal mining
• capital intensive: oil extraction & refining, car manufacturing, web hosting, intensive arable farming, transport, and infrastructure

Question 5

What factors influence choice of labour and capital?

Answer 5

• method of production: larger scales of mass production requires a lot of capital, products designed specifically for customers will require a lot of labour
• skills needed: a business that needs skilled workers for its output will be labour intensive
• relative costs: if labour is expensive (west Europe, USA) businesses will benefit from Mobil from labour to capital, where there is cheap labour it will be used more
• size of business: small businesses unlikely to be able to afford capital
• customer needs: of customers want personal contact, labour will be preferred to capital

Question 6

What are the implications of labour intensity?

Answer 6

• staff unlike machinery can be used flexibly to meet changing levels of consumer demand (temporary workers)
• can provide a personal touch and be more in-tune with customer needs and wants
• can provide tailor made products/services for different customer needs and wants, machinery is not flexible enough to provide custom made products/services for individuals
• labour can provide feedback, that provides ideas for continuous improvement (workers can adapt
• costs are mainly variable, lower break even

Question 7

What are the implications of capital intensity?

Answer 7

• costs are mainly fixed
• firms benefit from access to low cost, long term financing
• reduces human error, more accurate production
• greater efficiency (speed) and uniform/effort/output