Unit Costs Flashcards
What is the calculation for average cost per unit?
total production costs in period (£) / total output in period (units)
What is the difference between labour intensive and capital intensive industries?
labour intensive production relies on using labour resources, whereas capital intensive production relies on using capital resources.
Examples of labour intensive industries.
food processing, hotels and restaurants, fruit farming, hairdressing, coal mining.
Examples of capital intensive industries.
oil extraction and refining, car manufacturing, web hosting, intensive arable farming, transport infrastructure.
What are the implications of labour intensity for unit costs?
- labour costs higher than capital costs.
- costs are mainly variable = lower breakeven output.
- firms benefit from access to sources of low cost labour.
What are the implications of capital intensity for unit costs?
- capital costs higher than labour costs.
- costs are mainly fixed = higher breakeven output.
- frims benefit from access to low cost, long-term financing.
What are the benefits of capital intensity?
- greater opportunities for economies of scale.
- potential for significantly better productivity.
- better quality and speed (depending on product).
- lower labour costs.
What are the drawbacks of capital intensity?
- significant investment.
- potential for loss competitiveness due to obsolescence.
- may generate resistance to change from labour force.
What are the benefits of labour intensity?
- unit costs may still be low in low wage locations.
- labour is a flexible resource: through multi skilling and training.
- labour at the heart of the production process which can help with continuous improvement.
What are the drawbacks of labour intensity?
- greater risk of problems with employee/employer relationship.
- potentially higher costs of labour turnover (recruitment etc).
- need for continuous investment in training.
