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Firms and Production | O Level Economics 2281 & IGCSE Economics 0455 | Detailed Free Notes To Score An A Star (A*)

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  • Demand of FOPs
    • Product’s demand
    • High demand means more FOPs required so they will be met some way as well
    • Factor availability
      • If factors available easily, demand could go higher
    • Price of factors
      • Simple rule of law of demand
    • Factor productivity
      • More productive factors are demanded more than less productive factors
  • What is labor intensive business?
    • A labor-intensive business is one where more labor is employed compared to capital in the business
    • For example agriculture in most areas
    • Benefits
      • Flexible – labor can be taken and removed faster than machinery
      • Personalized services – more personal connection with the customers
      • Personal services – customers can get services that require a personal touch from the labor
      • Feedback – labor interacts with customers and the process and can provide valuable input
      • Compulsory – some productions require labor compared to machinery
    • Problems
      • Labor can be more expensive as regular wages compared to machinery
      • Labor can be more inefficient and inconsistent compared to machinery
      • Labor relation issues can cause trade union problems
  • Capital intensive product
    • Capital-intensive production is where more capital is used than labor
    • Benefits
      • More perfect than humans
      • Efficiency is higher
      • Consistency of production
      • Technical economies of scale so average costs fall
    • Problems
      • Initial expense is high for getting the machinery
      • Flexibility is lower compared to labor intensive businesses
      • No innovation – machine can only do what it is made for.
  • Productivity and Production
    • Productivity
      • Total output per the total input over a time period
      • Output produced during a time period/ total input used in the time period
    • What increases productivity?
      • More output from same resources
      • More or higher revenue from less resources
      • Labor productivity is what a worker can produce in a specific time period
    • Factors Influencing Productivity
      • Specialization
        • Each person can work better
      • Skills and experience of labor force
        • More productive
      • Motivation
        • More motivated workers are more productive
      • Technology
        • Better technology can improve productivity
      • Factor of Production Quality
        • Newer machinery and higher quality raw material can increase the productivity
        • Investment into improving quality and the process through lean production can also ensure more productivity
  • Production
    • Production transforms the raw materials to either finished products that customers can use directly
    • Or semi-finished products that are used in the industry to make finished products
    • Production adds value to inputs to create better outputs
    • Factors that influence production
      • Product demand- higher demand, higher production
      • Price and factor availability – if cheaper and easier to produce, production high.
      • Capital – Higher capital means higher investment in production
      • A product that gives better profits will be produced more
      • Government support in the form of subsidies and grants can lower costs and increase profitability as well.
Hunain Zia

Hunain Zia has previously achieved considerable success in the high-school educational stream, gaining a massive 154 Total A Grades and 7 Major Distinctions, a process in which he broke/ set 11 different world records, including the most A grades ever achieved, most subjects ever appeared in, most distinctions, gaining distinctions across two separate boards (Pearson Edexcel and CAIE) within the same year/ ever, and even 19 hours of constant examination. All records stand intact today. Hunain pursued his Honors Accounting Degree from the prestigious Bentley University, and then completed an LLB (in Honors) from University of London. Currently, he manages multiple social and commercial projects, has founded digital streams and works tirelessly in the education sector.

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