Production And Efficiency

Question 0

What is division of labour?

Answer 0

Breaking the production process down into a sequence of tasks, with workers assigned to particular tasks.

Question 1

What is the definition of specialisation?

Answer 1

The production of a limited range of goods by an individual factor of production or firm or country.
E.g London specialises in financing

Question 2

How is an increase in aptitude a benefit of the division of labour?

Answer 2

Repetition of tasks leads to them being done more expertly.

E.g typing

Question 3

How is time saving a benefit of the division of labour?

Answer 3

There is likely to be less time spent switching between different tasks and training workers.

Question 4

How is ‘working to ones natural strengths’ a benefit of the division of labour?

Answer 4

It allows people to do what they are relatively best at and focus solely on that.

Question 5

How is using capital equipment a benefit of the division of labour?

Answer 5

As tasks are subdivided, the firm can produce more goods and so investing in capital machinery is worthwhile.

Question 6

What is the definition of production?

Answer 6

The process that converts factor inputs into outputs of good and services.

Question 7

What is the equation for productivity?

Answer 7

Total output per time period
Divided by
Number of units of labour

Question 8

What are the 5 advantages of higher productivity?

Answer 8

1. Lower average costs= cheaper for consumer so higher demand
2. Improved competitiveness in international markets= improved productivity means firms can develop a competitive advantage
3. Higher profits
4. Higher real wages
5. Growth of the economy

Question 9

Describe a productive efficiency graph.

Answer 9

• costs of production on Y axis
• output on X axis
• curved like a smiley face
• lowest point on curve= lowest average costs (ATC) which is the maximum productive efficiency

Question 10

What is a fixed cost?

What are some examples?

Answer 10

Costs of production that do not vary as output changes.
E.g:
-rent on buildings and business rates
-marketing and advertising costs
-costs of purchasing new capital equipment

Average fixed costs (AFC) is the fixed cost per unit of output produced.

Question 11

What is a variable cost?

What are some examples?

Answer 11

Costs of production that vary with output.
E.g
-costs of raw materials
-labour costs

Average variable cost (AVC) per unit of output produced.

Question 12

What is the definition of economies of scale?

Answer 12

Where an increase in the scale of production leads to reductions in average total costs for firms.

Question 13

What are internal economies of scale?

Answer 13

They arise from the growth of the firm itself.

Question 14

What are technical economies of scale?

Answer 14

• large scale businesses can afford more expensive, specialist capital machinery= increase productivity
• Specialisation of the workforce= division of labour
• the law of increased dimensions= doubling the height and width of something e.g transport or a building

Question 15

What are marketing economies of scale?

Answer 15

A large firm can spread it’s advertising and marketing budget over a large output.

Question 16

What are managerial economies of scale?

Answer 16

A form of division of labour= larger firms can have specialist senior managers in particular sections (investment in human resources)

Question 17

What are financial economies of scale?

Answer 17

Larger firms usually have more favourable rates of borrowing from the bank as they are judged ‘credit worthy’ rather than smaller firms which are judged ‘risky’.
E.g the power major supermarkets have over farmers

Question 18

What are network economies of scale?

Answer 18

The extra cost of adding one more user to a companies network is 0 in comparison to the value it provides to the business as they can interact and trade with all the other existing members.

Question 19

What are external economies of scale?

Answer 19

They occur outside of a firm but within an industry.

E.g creation of better transportation networks may lead to cost reductions for a company working within that economy

Question 20

What are diseconomies of scale?

Answer 20

Where an increase in the scale of production leads to increases in average total costs for firms.

Question 21

What are the 3 ways diseconomies of scale can happen?

Answer 21

1. CONTROL= the productivity and the quality of output from thousands of employees is hard and costly
2. COORDINATION= difficult to coordinate complicated production processes across several locations within the firm
3. COOPERATION= workers in large firms may feel a loss in motivation as the company grows because they don’t feel like an integral part of the company

Question 22

What are the 3 ways diseconomies of scale can be avoided?

Answer 22

• developments in human resources management (HRM)= improvements to recruitment procedures, training, promotion and support of staff
• performance-related pay schemes= incentives for workers to be more productive

-out sourcing= obtain (goods or a service) by contract from an outside supplier
E.g school computers operated by Microsoft

Question 23

Describe the economies/diseconomies of scale graph.

Answer 23

• costs of production on the Y axis
• output on the X
• shaped like a smile
• Q1 to Q2 (slopes down)= experiencing economies of scale
• Q2= lowest ATC (average costs) so firm most productively efficient
• Q2 to Q3 (sloping up)= experiencing diseconomies of scale

Question 24

What is the definition of competition?

Answer 24

A market situation in which there are a large number of buyers and sellers.

Question 25

What is the definition of a monopoly?

Answer 25

A market structure dominated by a single seller of a good.