Production And Efficiency Flashcards
(26 cards)
What is division of labour?
Breaking the production process down into a sequence of tasks, with workers assigned to particular tasks.
What is the definition of specialisation?
The production of a limited range of goods by an individual factor of production or firm or country.
E.g London specialises in financing
How is an increase in aptitude a benefit of the division of labour?
Repetition of tasks leads to them being done more expertly.
E.g typing
How is time saving a benefit of the division of labour?
There is likely to be less time spent switching between different tasks and training workers.
How is ‘working to ones natural strengths’ a benefit of the division of labour?
It allows people to do what they are relatively best at and focus solely on that.
How is using capital equipment a benefit of the division of labour?
As tasks are subdivided, the firm can produce more goods and so investing in capital machinery is worthwhile.
What is the definition of production?
The process that converts factor inputs into outputs of good and services.
What is the equation for productivity?
Total output per time period
Divided by
Number of units of labour
What are the 5 advantages of higher productivity?
- Lower average costs= cheaper for consumer so higher demand
- Improved competitiveness in international markets= improved productivity means firms can develop a competitive advantage
- Higher profits
- Higher real wages
- Growth of the economy
Describe a productive efficiency graph.
- costs of production on Y axis
- output on X axis
- curved like a smiley face
- lowest point on curve= lowest average costs (ATC) which is the maximum productive efficiency
What is a fixed cost?
What are some examples?
Costs of production that do not vary as output changes.
E.g:
-rent on buildings and business rates
-marketing and advertising costs
-costs of purchasing new capital equipment
Average fixed costs (AFC) is the fixed cost per unit of output produced.
What is a variable cost?
What are some examples?
Costs of production that vary with output.
E.g
-costs of raw materials
-labour costs
Average variable cost (AVC) per unit of output produced.
What is the definition of economies of scale?
Where an increase in the scale of production leads to reductions in average total costs for firms.
What are internal economies of scale?
They arise from the growth of the firm itself.
What are technical economies of scale?
- large scale businesses can afford more expensive, specialist capital machinery= increase productivity
- Specialisation of the workforce= division of labour
- the law of increased dimensions= doubling the height and width of something e.g transport or a building
What are marketing economies of scale?
A large firm can spread it’s advertising and marketing budget over a large output.
What are managerial economies of scale?
A form of division of labour= larger firms can have specialist senior managers in particular sections (investment in human resources)
What are financial economies of scale?
Larger firms usually have more favourable rates of borrowing from the bank as they are judged ‘credit worthy’ rather than smaller firms which are judged ‘risky’.
E.g the power major supermarkets have over farmers
What are network economies of scale?
The extra cost of adding one more user to a companies network is 0 in comparison to the value it provides to the business as they can interact and trade with all the other existing members.
What are external economies of scale?
They occur outside of a firm but within an industry.
E.g creation of better transportation networks may lead to cost reductions for a company working within that economy
What are diseconomies of scale?
Where an increase in the scale of production leads to increases in average total costs for firms.
What are the 3 ways diseconomies of scale can happen?
- CONTROL= the productivity and the quality of output from thousands of employees is hard and costly
- COORDINATION= difficult to coordinate complicated production processes across several locations within the firm
- COOPERATION= workers in large firms may feel a loss in motivation as the company grows because they don’t feel like an integral part of the company
What are the 3 ways diseconomies of scale can be avoided?
- developments in human resources management (HRM)= improvements to recruitment procedures, training, promotion and support of staff
- performance-related pay schemes= incentives for workers to be more productive
-out sourcing= obtain (goods or a service) by contract from an outside supplier
E.g school computers operated by Microsoft
Describe the economies/diseconomies of scale graph.
- costs of production on the Y axis
- output on the X
- shaped like a smile
- Q1 to Q2 (slopes down)= experiencing economies of scale
- Q2= lowest ATC (average costs) so firm most productively efficient
- Q2 to Q3 (sloping up)= experiencing diseconomies of scale
