4AS.1.

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Presentation transcript:

4AS.1

Recap: Added Value and Profit Objectives What is added value? What is profit?

Added Value and Profit

Added Value = Value of Outputs less cost of production Inputs Processes Outputs Added Value = Value of Outputs less cost of production

The Production Process Labour Capital Land Resources Inputs Enterprise Processes Production Finished goods and services Outputs Waste Value added reinvested into inputs or marketing, research and administration

The Production Process Be very careful with these diagrams. They look a bit like a formula; if you put in X you should get out Y. Not so! Some companies may get 0.5Y whereas another may get 3Y. Choose 2 industries, one a service and one a good, and construct a production process for it.

How to increase value added? Two general methods: Increase value of outputs Produce more with the same inputs. Increase price through marketing activities. Decrease cost of inputs Use fewer inputs. Use cheaper inputs.

Efficiency Efficiency is concerned with how much output a firm can generate from a particular level of input. It is often measured by a firm’s labour productivity, i.e. on average, how much does each worker produce in a given period of time? Labour productivity = total output ÷ number of workers Efficient firms can maximize profits by keeping unit cost low. A firm with 10 workers that produces 100 units of output per week is far more efficent than a rival which can only managed the same output with 20 workers. Teacher’s note: Productivity per worker for the first firm is 10 units; productivity per worker for the second firm is only 5. If the two firms pay similar wages, the second firm’s unit costs will be double that of the first. Photo: © O.V.D., shutterstock.com Calculate the labour productivity for the two firms in the above example. 8

Specialization and division of labour Specialization breaks up the production process into separate functions, allowing workers to concentrate on one area. What is specialisation? What are the advantages and disadvantages of specialisation? What specialization might occur in a bike factory? 9

What effects labour efficiency Page 385 Activity 20.1 Effects on labour productivity: Motivation ?

Efficiency 2 Why would it be inappropriate to compare the efficiency of an Indian company with a Japanese company using labour productivity? A more appropriate measure of efficiency would be capital productivity. Capital productivity = total output ÷ capital employed

Capital Productivity Page 386 activity 20.2 Effects on capital productivity: ?

Effectiveness Effectiveness is how well you have achieved your objectives. It is not efficiency! For example to make a teacher more efficient, you could placed 60 pupils in his/her class. Would this be effective? Make notes on efficiency and effectiveness page 386.

4AS.1

Job Production

Batch Production

Flow Production

Flow Production

Mass Customisation BMW X3

Production methods What is: Job production (p392) Batch production Flow production Mass customisation Give examples of each and give examples of their advantages and disadvantages (p397)

Production methods compared 21

Why do companies need to be flexible in what they produce? 3 answers to the question above please. Make notes on CAD and CAM page 395.

Economies and diseconomies of scale Teacher’s note: Examples of different types of economies of scale include: Purchasing: discounts for buying in bulk. Technical: spreading the cost of a new, faster piece of machinery. Managerial: being able to employ specialist managers (marketing, financial, human resources) to improve efficiency. Marketing: spreading the cost of a major advertising campaign. Financial: banks often charge lower interest rates to larger firms as they are seen as less of a risk. Photos: soap bottles © tonobalaguerf, shutterstock.com; welding robots © Rainer Plendl, shutterstock.com; milk bottles © Semen Lixodeev, shutterstock.com; empty warehouse © jkitan, shutterstock.com; wine bottles © mrfotos, shutterstock.com 23

Economies and diseconomies of scale Page 408 What is an economy of scale? Make notes on the 5 types of economies of scale. What is a diseconomy of scale? Make notes on the 3 types of diseconomies of scale.

Location of business Location can be divided into 2: National (where should a company locate within a country). International (in which country should a company locate).

National Location of Business Nissan page 86 Mapskills Give reasons from the map why Nissan has located there?

National Location Factors Transport costs Availability of employees Labour costs Government grants Proximity to market Site costs Demographics

International Location Factors Free Trade Zones EU NAFTA Government policies Employment laws Proximity to international markets – transport costs.