2.4 Capital and labour intensive, efficiency and productivity

Labour intensive

When a high level of human input is required in the production process

Capital intesnive

When a high level of capital investment is required in the production process

Advantages and disagvantages of labour intensity

A

- Unit costs may still be low in low-wage locations

-Labour is a flexible resource-through muti-skilling and training

- Can help with continuous improvement

D

- Greater risk of problems with employee/employer relationships

- Potentially high costs of labour turnover

- Need for continuous training

Advantages and disadvantages of Capital intensity

A

- Greater oportunities for economies of scale

- potential for significantly better productivity

- Lower labour costs

D

- Significant investment

- Potential for loss of competitiveness due to obsolescence

- May generate resistance from the labour force

What is productive efficiency?

Producing at a level of output with lowest possible average cost

Why is efficiency important?

- Goods can be produced at a lower cost than competitors

- May generate higher profit margins

- May sell higher quantities if prices can be reduced

What is productivity?

A measure of the output per unit in a given time period

Ways to improve prodcutivity

- Improved organisation of production

- Specialisation and the division of labour

- More capital equipment

- Taining

How do we calculate unit costs?

Unit cost= total production costs in period/total output in period, A failing ratio would indicate that efficiency was improving.