productive efficiency Flashcards
Define productivity.
The output per unit of input per unit of time.
What are the implications of higher productivity for firms and the overall economy?
Lower average costs of production > lower prices > increase in demand > lower unemployment > higher GDP growth.
How can a firm’s credit history determine how productive it can be?
Good credit scores increase the loans given to firms, which they can invest in R&D and become more productive through technological advancements.
What is capital-intensive production?
This occurs when firms have access to cheap credit, whereby capital is cheaper to purchase than labour.
Give the formula for capacity utilisation.
(Actual level of output / Maximum possible output) x100
Why would a firm possibly be operating under maximum capacity?
A reduction in demand from consumers means there is no need to be producing extra units of output.
How could operating at full capacity affect the quality of goods produced?
Operating at full capacity implies a rushed process where employees are demotivated thereby diminishing the quality of goods.
Give one benefit of under-utilised capacity.
Firms have the flexibility to change its level of output according to changes in the economic cycle.
If a firm entered a new market, how would it affect its capacity utilisation?
It would improve capacity utilisation, as more labour and capital is required to produce the extra output now that the firm has entered a new market.
What is lean production?
The process of minimising waste during the different stages of production.
Describe the difference between quality control and quality assurance.
Quality control ensures the products meet the minimum standards, whereas quality assurance encourages collaboration between design, production and marketing.
What is kaizen production?
Making small, continuous improvements.
How can kaizen production help reduce average costs of production?
Constantly making small ‘tweaks’ in a firm reduces the need for major capital investments.
Describe JIT management of stock.
Just In Time ensures stock arrives as and when it is needed, based on consumer demand, thereby reducing costs of storage.
Give 2 disadvantages of JIT
- The firm is dependent on the supplier for stock in a short timeframe
- The firm won’t be able to handle huge, unexpected surges in consumer demand
