2.3 Productive efficiency

Question 1

What are the 3 types of production?

Answer 1

1. Job (one worker doing a job from beginning to end – only one product/service at a time)
2. Batch (e.g. food production, like loaves of bread)
3. Flow (on a conveyor belt – product after product)

Question 2

What type of production is mass production?

Answer 2

flow

Question 3

adv and disadv of mass production

Answer 3

• quick to make + so cheaper to sell (SO MORE SOLD))

BUT

• deskills workers = lowers their wages –> workers more specialised and good at their jobs

Question 4

2 ways of measuring production

Answer 4

• Maximum capacity – the most you can make in that facility over a period of time (if operating all the time, using all your factors of production): a number
• Spare capacity – gap between maximum capacity and what you are currently producing (number or a %)

Question 5

Define efficiency

Answer 5

how well the business turns inputs into outputs

Question 6

4 things efficiency is measured by

Answer 6

1. Unit cost - average cost (total cost / no of units of output)
2. Unit labour cost - (labour costs / number of units of output)
3. Labour productivity rate (number of units of out per per worker / (over) given period of time)
4. utilisation rates (actual output / maximum capacity x 100 (%))

Question 7

how to improve underutilisation

Answer 7

• Lower capacity
• Increase sales – price, place product, promotion

Question 8

Implications of underutilisation

Answer 8

• Higher unit cost
• Therefore – lower profit margin and/or higher price (lower profits)

Question 9

what is overutilisation?

Answer 9

working over normal capacity

Question 10

ways to achieve overutilisation

Answer 10

• Putting off regular maintenance
• Putting off training
• Workers doing overtime
• Sub contracting
• Temp equipment/factory space/workers (renting)

Question 11

What is economies of scale?

Answer 11

where unit costs decrease as output increases

Question 12

what causes economies of scale? (3)

Answer 12

• BULK BYING economies (unit variable costs fall)
• Managerial economies, marketing economies, admin economies, technical economies (all due to the existance of fixed costs)
• External economies( by a whole industry being big, so are you) – clustering e.g. suppliers and workers and businesses are all in the same area e.g. Silicon Valley for technology

Question 13

What are diseconomies of scale

Answer 13

as output increases, unit costs go up

Question 14

What causes diseconomies of scale?

Answer 14

• Motivation problems – effciency falls = fewer output per worker
• Communication difficulties

—> all human worker problems

Question 15

Why do diseconomies happen?

Answer 15

Some firms pursue income rather than profit = can become inefficient

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