chapter 21 - firms & production

Question 1

factors of production

Answer 1

land - natural resources (raw material) available for production of goods and services
labour - human input in the production process
capital - manufactures goods use to produce other goods
enterprise - risk takers who organises factors of production and provide ideas

Question 2

demand on f.o.p depends on:

Answer 2

• cost of f.o.p
• productivity of f.o.p
• quality of f.o.p

Question 3

definition of:

labour intensive

Answer 3

in labour intensive industries, cost of labour is proportionally higher than cost of other f.o.p

Question 4

definition of:

capital-intensive

Answer 4

a capital intensive industries, use and cost of capital is more prominent than that of any other f.o.p

Question 5

explain labour intensive

Answer 5

• can be expensive

- production used to produce individual/ personalised products

Question 6

explain capital intensive

Answer 6

• used a lot of money to fund activities
• use as a barrier to entry, expensive for new firms to enter
• huge cost savings - technological economies of scales in the long run
• increase output & productivity
• c.o.p relatively low

Question 7

factors affecting whether to choose capital or labour intensive

Answer 7

• cost of labour compared to cost of capital
• size of market
• firm’s objectives

Question 8

reasons to use capital intensive

Answer 8

• mass production techniques
• c.o.p low
• reduces human errors in production process

Question 9

drawbacks of using capital intensive

Answer 9

• expensive; set up costs, running cost, replacement cost

- breakdown will cause major problems

Question 10

reasons to use labour intensive

Answer 10

• suitable for products highly customised
• firms can charge higher price
• workers highly skilled and experienced; good quality products

Question 11

drawbacks of labour intensive

Answer 11

expensive to hire highly skilled workers; high c.o.p

Question 12

definition of:

production

Answer 12

total output of goods and services in production process

Question 13

definition of:

productivity

Answer 13

measure of efficiency by calculating the amount of output per unit of factor output

Question 14

higher productivity is important bcs:

Answer 14

• higher profits
• higher wages
• economies of scale
• improved competitiveness
• economic growth

Question 15

influences on productivity

Answer 15

• investment
• innovation
• skills & experience
• entrepreneurial spirit
• competition.