2.6 Production REDO THIS ONE Flashcards
(24 cards)
productivity
one measure of the degree of efficiency in the use of factors of production in the production process. It is measured in terms of output per unit of input
What is an increase in production likely to bring about?
- an increase in employment
- an increase in profits for the firm and industry
- larger economies of scale
- an increase in market share if the production of one firm increases against that of other firms
- economic growth for the economy
- a rise in the standard of living as consumers have more choice of goods and services to buy
formula for productivity
productivity = total output / total input
What does productivity depend on
it depends on improving the inputs to the production process. This may be achieved by investing in better equipment, such as improving the quality of the machines. It can also be improved by better training and education for the workforce. This could increase their skill and knowledge, making them better at doing their job which increases productivity.
why high productivity importance for individuals
because higher productivity is likely to be rewarded with higher wages and an increase in the standard of living
importance of high productivity for firms
because higher productivity will result in:
- lower average costs and increasing economies of scale. This makes the firm more competitive so that it can then lower its prices and/or compete more effectively on a world scale. This will benefit the economy by increasing GDP through greater exports and consumption. This also improves the balance of payments
- greater profits, allowing the firm to offer higher wages to attract the best workers, and the reinvest in new equipment and research. Investment will again increase competitiveness and GDP. Higher wages will benefit the economy as there will be more people motivated to get qualification and improve their skills, which further increases productivity.
Why is high productivity important for governments?
governments will benefit through economic growth as:
- higher productivity increases the total output of the economy. This is likely to lead to an increase in employment and higher wages, which then leads to greater tax revenue for the government
- more competitive firms will lead to greater exports and thus further economic growth
What are the 2 costs of productivity?
- if a firm increases productivity using capital equipment instead of labour, this may increase unemployment. This will mean the government will have to spend more on unemployment benefits and it will receive less tax revenue since less people will be paying taxes
- increased productivity leading to greater international competitiveness, may lead to other countries retaliating, which can cause fall in GDP
How can firms increase productivty?
- workers specialising in part of the production process (DoL)
- investing in new technology and more capital equipment
- improving the skills of the workers through training
- R and D
- increase quality of FoP (most of the time)
- Improve employee motivation by:
➢ team building activities
➢ increasing employee rewards, e.g. performance related
pay/bonuses
average cost
average cost = total cost / quantity
what does a fall in average cost show
it shows the firm is becoming more efficient
average revenue
average revenue = total revenue / quantity
generally happens to production costs as output increases
production costs generally rise as output increases
revenue important for producers
- without inflow of money producer cannot earn profit or remain in business in LR - low Rev - loss - going out of business
- growth in revenue encourages investors to invest more money into the firm, which allows producers to expand further, buy new equipment, etc
- steady levels of revenue allow producers to secure loans and favourable interest rates over drafts. Having the ability to run an overdraft means that producers do not have to worry so much in the short run about whether they will be able to pay suppliers, workers, etc
- it creates worker, business partner, etc confidence in the firm. For example, if a firm is making high revenue then workers are more likely to remain in the firms employ and suppliers may feel more able to supply the producer with goods and allow it to pay later
What is the importance of profit for producers in a market economy?
profit is important for producers in a market economy because:
- it generates finance for investment (retained profits)
- it acts as a signal and tells other producers that they too might be able to make a profit in that marker (larger profit show more efficient use of resources)
- it allows a producer to attract more resources to the firm or industry
What are the 9 different types of internal economies of scale
technical economies, economies of increased dimensions, purchasing or bulk-buying economies, division of labour, financial economies, managerial economies, marketing economies, risk-bearing economies, and research and development economies
What is meant by external economies of scale?
those that a firm benefits from as a member of an industry or because of its location, they are due to factors outside the direct control of the business
what is the role of producers
make and supply g&s, by combining FoP
employ and payh workers’ wages - allowing g&s to be produced
individuals, firms, and governments as producers
individuals:
producers of nonmarket goods (cleaning, cooking)
many only work part time
many are self employed - traders, plumbers
- means they keep profits
firms:
- generally what we mean when we say producers
- range from small firms to MNCs (multinational companies)
governments:
- produce gs the private sector wouldnt (people dont want to pay for something they dont directly consume) - police, defence
- also produce gs the private sector would - healthcare
profit
The amount of money a producer has left after all the costs have been paid, i.e. when total revenue is greater than total cost.
why is loss bad
firm will run out of money or people who have lent money will demand repayment and this wont be possilbe - producer will close
- opposite roll to profit (if industry is making a loss, Fop will leave to find an industry making a profit
GENERAL EOS COR (SO IMPORTANT)
EOS - PROFIT UP - PAY HIGHER WAGES (AND SO ATTRACT BETTER WORKERS) - LABOUR PRODUCTIVITY UP - OUTPUT UP - FALL IN AC (TC RISING BUT Q RISING MORE - EOS
(this also applies to investment into other FOPS
managerial economies COR
hiring specialised managers with high inelastic wage rates increase labour productivity - bigger firms can spread this cost over a wider range of output - specialised managers will help specialise workforce to increase output - productivity up - q rising faster than tc - ac falls - more EOS
evaluate: is rise in TR = rise in TP
