Optimal Production Mix-Capital orLabour Intensive Production

• Optimal production mix


  Factors of production considered, whether to focus more on capital intensive production or labor intensive production
• Capital intensive production


  Proportionately more capital used in the production process
• Advantages of capital intensive production

  • If fully automated, production is likely to be 24/7
  • Less need for breaks, sickness, demotivation, strikes, shortcuts leading to less defects and waste
  • Consistent and reliable production due to repetitive processes
  • Cost-effective in the long term with efficiency gains
• Disadvantages of capital intensive production

  • Sheer cost and size of capital
  • Inflexibility of machinery leading to potential problems
• Situations when it makes sense to be capital intensive

  • Business has finance available
  • Operates in a country with high relative wages
  • Product is standardized
• Labor intensive production


  Proportionately more labor used in the production process
• Advantages of labor intensive production

  • Likely cheaper on a smaller production scale
  • Labor can perform tasks that capital cannot
  • Supports wider kaizen or tqm cultures
• Disadvantages of labor intensive production

  • Need for breaks, holidays, and effective management
  • Higher staff turnover leading to continuous recruitment costs
• Situations when it makes sense to be labor intensive

  • Small-scale production
  • Operates in a country with lower wages
  • Product is bespoke or tailor-made