unit 5: production

Question 1

explain profit maximisation

Answer 1

this is when firms seek to make the highest profits possible

Question 2

define production

Answer 2

process of making physical objects or changing raw materials into finished goods to satisfy needs

Question 3

what determines the demand for labour and capital?

Answer 3

labour
- supply of labour; which also depends on the size of the population and the proportion of the total population that is available for work and is willing to work.

capital
- the supply of capital depends on the extent to which people are willing to forgo consumer goods now.

Question 4

what determines the damand for land and enterprise?

Answer 4

land
- the supply of land for a particular use.

Question 5

define productivity

Answer 5

the output measured againts the input used to produce something

total output divided by the number of employees

Question 6

explain how can productivity be improved

Answer 6

• quality of the labour force: by improving the quality of education and training programes, productivity can improve
• quantity and quality of machinery and capital equipment
• **efficient use of resources **
• division of labour
• employee participation
• business conditions:economi situation effects productivity, if the economy is positive, people are productive

Question 7

what are the effects of information technology on productivity?

Answer 7

advantage
- work can be accurate and neat if word processing functions are used properly
- statistics can be presented clearly and neatly on spreadsheets
- it’s easy to retrieve information, like addresses
- a large number of employees can be replaced by one person
- manual work is replaced by machinery and is faster and easier to manage
- where computers are designed to be user friendly, workers can manage the work easily and become confident

disadvantage
- workers could lose their jobs as they are not needed anymore
- it’s costly to buy new machinery and to train staff
- workers might feel uneasy with a new way of doing things and they might not perform well
- sometimes computers are not designed well and are not user-friendly
- computer systems can sometimes malfunction and then there is downtime, which is very unrpoductive

Question 8

discuss the effects of HIV/AIDS on productivity

Answer 8

• fall in productivity, due to high rates of absenteeism
• business spends more money training and retraining workers to replace infected employees
• government spends more on increasing support to infected employees and medical assistance

Question 9

define total, average, fixed and variable costs

Answer 9

• total costs: variable costs plus fixed costs
• fixed costs: costs that remain the same no matter how much is produced
• variable costs: costs that will change as output changes
• average costs: cost per unit of output produced

Question 10

define total and average revenue

Answer 10

total revenue- quantity of total sales multiplied by the price at which its goods or services are sold

average revenue - revenue per unit sold

Question 12

explain the effects of changes in technology on production

Answer 12

advantages
- production becomes simpler
- production is less labour-intensive
- firms can achieve economies of scale(produce on a large scale at a lower cost)
- production methods improve, a wider variety of goods are available to consumers
- higher profits as a result of increased output

disadvantages
- costly training has to be provided to teach people how to operate new and advanced machinery
- the process of replacing labour with capital can be expensive
- reduces the employment rate
- personalised touch when labour is replaced by capital

Question 13

define economies of scale

Answer 13

large scale production which leads to lower average costs

Question 14

list and briefly explain the economies of scale

Answer 14

• financial economies of scale: as firms expand, they can obtain loans at a lower (interest rate) and increase their economies of scale
• managerial economies of scale: as the firm increases insize, it can employ specialists to do jobs like bookkeeping.
• purchasing economies of scale: when firms buy materials in large quantities, they often get discounts and pay less
• marketing economies of scale: large firms are bale to afford expensive advretising campaigns
• technology economies of scale: the large firn can afford to buy advanced machiner

Question 15

define diseconomies of scale

Answer 15

when increased output leads to an increase in avreage costs

Question 16

list diseconomies of scale

Answer 16

• departments become too big to manage/ loss of control
• it becomes difficult to organise and supervise activities
• increased waste f resources
• industrial land becomes expensive due to high demand
• leads to shortage of skilled workers
• poor indutrial develop due to loss of control

Question 17

list advantages of growth to managers and owners

Answer 17

• obtain more market share
• job security when business is large
• obtain cost advantages called economies of scale

Question 18

define and list the types of mergers

Answer 18

merger: when two different firms join together and operate as one firm
- vertical
- horizontal
- conglomerate/diversification

Question 19

explain vertical mergers

Answer 19

when 2 firms in the same industry, but at a different stage of production join together
- forward vertical: when a firm buys another firm further along the production chain
- backward vertical: when a firm buys one of its suppliers

Question 20

explain a horizontal and conglomerate/ diversification merger

Answer 20

horizontal- when 2 firm operating in the same industry and at the same stage of production join together.

conglomerate/diversification merger- merger between firms that are involved in totally unrelated business activities

Question 21

what are the factors influencing the size of a business?

Answer 21

• profit
• value of capital employed
• value of sales and output
• demand for variety:
• geographical limitation
• personal services
• disintergration