2.3 Productive efficiency

• productivity

  output per unit of input per unit of time
• implications of higher productivity for firms and the overall economy

  lower average costs of production -> lower prices -> increase in demand -> lower unemployment -> higher GDP growth
• how can a firms credit history determine how productive it can be

  good credit scores increase the loans given to firms, which they can invest in R&D and become more productive through technological advancements.
• what is capital intensive production

  occurs when firms have access to cheap credit, whereby capital is cheaper to purchase than labour
• formula for capacity utilisation

  (Actual level of output / maximum possible output) x 100
• why would a firm possibly be operating under maximum capacity

  a reduction in demand from consumers means there is no need to be producing extra units of output
• how would operating at full capacity affect the quality of goods produced

  implies a rushed process where employees are demotivated, thereby diminishing the quality of goods
• one benefit of under utilised capacity

  firms have the flexibility to change its level of output according the changes in the economic cycle
• if a firm entered a new market, how would it affect its capacity utilisation

  it would improve capacity utilisation, as more labour and capital is required to produce the extra output now that the firms has entered a new market
• lean production

  process of minimising waste during the different stages of production
• difference between quality control and quality assurance

  quality control ensures the products meet the minimum standards, whereas quality assurance encourages collaboration between design, production and marketing.
• how can small, continuous improvements (Kaizen) reduce average costs of production

  constantly making small "tweaks" in a firm reduces the need for major capital investments
• JIT management of stock

  Just in time ensures stock arrives as and when it is needed, based on consumer demand, thereby reducing costs of storage
• 2 disadvantages of JIT

  • firms is dependant on the supplier for stock in a short timeframe
  • firm wont be able to handle huge, unexpected surges in consumer demand
• what is lead time

  time between a decision being made and then carried out