Factors of production
The resource inputs that go into the production of a good or service – they include:
- Land – factory space, land
- Capital – machinery, tools, technology
- Natural resources – raw materials extracted from the earth or sea
- Enterprise – the risk-taker who brings the other factors of production together to produce a good or service.
Labour intensive production
This means that the way that a good or service is produced depends more heavily on labour than the other factors of production, such as capital.
The costs of labour make up a high % of total costs.
Can you list examples of industries that are labour intensive?
E.g: an industry that is labour intensive is the restaurant and hotel industry / services.
Capital intensive production
This means that the way that a good or service is produced depends more heavily on capital (machinery) than the other factors of production, such as labour.
The costs of capital (machinery) make up a high % of total costs.
Can you list an industry that is capital intensive?
E.g: an industry that is capital intensive is – oil refining, manufacturing.
Advantages and disadvantages of capital intensive production
Advantages of capital intensive production
- Reduces human error – more accurate production.
- Greater speed (efficiency) and uniform effort / output.
- Technical economies of scale – increased efficiency => lower AC.
- No problems with labour shortages / planning labour.
Disadvantages of capital intensive production
- Initial high costs of investment and possible training costs.
- Lack of flexibility in responding to a fall in demand. In contrast, labour can be used flexibly, e.g. using temporary workers.
- Machinery lacks initiative, e.g: it is unlikely to be innovative, provide ideas on how to improve production or take on extra responsibilities.
Advantages and disadvantages of labour intensive production
Advantages of labour intensive production
- Staff, unlike machinery can be used flexibly to meet changing levels of consumer demand, e.g. temporary workers.
- Can provide a ‘personal touch’ and be more in-tune with customer needs and wants.
- Can provide tailor made products / services for different customer needs and wants. Machinery is not flexible enough to provide custom made products / services for individual customers.
- Labour can provide feedback, that provides ideas for continuous improvement. Workers can adapt to introduce new ideas.
Disadvantages of labour intensive production
- Relatively expensive in the long-term when compared to machinery – higher per unit costs due to lower levels of productivity.
- 2. Relatively inefficient and inconsistent levels of effort.
- Labour relation problems, e.g. may go on strike.
- There could be a shortage of skilled labour, unlike machinery.