Production, productivity and efficiency — Edexcel A-Level Business
Test yourself on Production, productivity and efficiency with PEARSON EDEXCEL A-Level practice questions.
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Production, productivity and efficiency explained
The choice here is a trade-off between unit cost and flexibility, and the right answer depends on what customers will pay for.
Read the full explanation
One off work made to a customer's own specification needs high labour skill and carries a high cost per unit, but it commands a premium, which is why a bespoke tailor or a specialist engineering workshop is organised that way. Working in groups lets a bakery run white loaves and then switch to brown, at the price of downtime and cleaning between changeovers. Continuous mass production on a line, as at a Nissan plant, drives the cost per unit down through capital intensity and standardisation, but the line is expensive to install and painful to alter. Splitting the factory into teams that complete a whole unit shortens movement and, in Herzberg's terms, restores responsibility and recognition that a conveyor strips out.
b) Productivity: output per unit of input per time period: factors influencing productivity; link between productivity and competitiveness
Divide total output by the number of employees over a stated period and the result is labour productivity, measured in units per worker per week, month or year; the same idea can be applied to a machine or to a square metre of floor space. It moves for a short list of reasons: training and experience, investment in better equipment and software, how the work is organised and specialised, the quality of management, and how motivated the staff are. It matters because it drives labour cost per unit. If two factories pay the same wage and one gets more out of each worker, its cost on every unit is lower, so it can undercut on price or keep a wider margin, which is the gap Britain has argued about against Germany for years. The catch is that pushing harder can raise defect rates, and the equipment that lifts output has to be paid for first.
c) Efficiency: production at minimum average cost: factors influencing efficiency; distinction between labour and capital intensive production
Efficiency here is a cost idea rather than a volume one: a firm is efficient when each unit leaves the line at the lowest possible average cost, and average cost is total cost divided by units produced. What lifts it is standardisation, training, lean methods, planned maintenance, economies of scale and fuller use of the plant already paid for. The method choice matters just as much. A labour intensive bakery carries light fixed costs and can change product daily, but pays a heavy wage cost per loaf; a capital intensive plant such as a car body shop carries huge fixed costs and tiny variable costs, so unit cost only collapses if volume is genuinely high. That is the decision trade-off examiners want: automation buys cheap units at the price of a much higher break-even output and far less flexibility when demand falls.
Your focus
- a) Methods of production: job; batch; flow; cell
- b) Productivity: output per unit of input per time period: factors influencing productivity; link between productivity and competitiveness
- c) Efficiency: production at minimum average cost: factors influencing efficiency; distinction between labour and capital intensive production
Production, productivity and efficiency exam tips
Marking Points
- Each method defined by how the work flows rather than by the size of the firm, with an example of a product genuinely made that way.
- Cost per unit and flexibility compared explicitly, because the choice between methods is a decision about that trade-off.
- A link to motivation theory where team working is discussed, naming Herzberg or Mayo and saying what the team structure actually changes.
- Application to the case: justify the method against the firm's order pattern, the variability of demand and the capital available.
- The measure given as a calculation with its unit: total output divided by the number of workers, giving units per employee per period.
- Factors grouped and explained rather than listed: investment and technology, training and skill, organisation of work, motivation and management quality.
- The competitiveness chain spelled out, from more output per worker to a lower labour cost on each unit to a lower price or a wider margin.
- Application and judgement: whether the named firm can raise the figure given its cash position, and what it might cost in quality or morale.
- Defines the idea in cost terms, production at the lowest average cost, and shows average cost as total cost divided by output in pounds per unit rather than describing it vaguely as working harder
- Names a driver and chains it to cost for the business in the case, for example investment in newer machinery cuts reworking, so fewer units are scrapped, so material cost per saleable unit falls
- Distinguishes the two methods by cost structure, labour intensive meaning wages are the larger share of total cost and capital intensive meaning machinery and depreciation are, and links the choice to order size and product variety
- Weighs the trade-off explicitly, noting that automation raises fixed costs and therefore the break-even output, which is risky where demand is seasonal or falling
- Reaches a supported judgement that uses the firm's own figures, such as current utilisation, order book or margin, rather than a generic conclusion that automation is good
Examiner Tips
- 💡Questions normally ask whether a firm should change its method, so answer with the cost saving, the capital needed and the flexibility lost, then judge.
- 💡Bring capacity utilisation into the argument, since a line running well below capacity carries heavy fixed costs on every unit made.
- 💡Name any model you use, because credit for motivation theory depends on the theory being identified rather than implied.
- 💡The calculation appears as a two mark item; give the unit and the period, because a bare number often fails to earn the accuracy mark.
- 💡Longer questions ask how a firm can improve the figure, so weigh a capital solution against a human resource solution and commit to one.
- 💡Where the extract gives output and headcount for more than one year, work out both and comment on the change rather than the level.
- 💡This is usually the stem of a longer assess or evaluate question about whether a named business should automate, so plan two arguments and one counter, and finish with a judgement that depends on a condition such as expected sales volume
- 💡Short answers often ask you to calculate average cost before and after a change first, so do the arithmetic, state the units as pounds per unit, then comment on what the change does to competitiveness
- 💡Quote the case study evidence for the cost structure, such as wage bill as a share of total cost or the value of machinery, instead of assuming the business is one type
Common Mistakes
- Describing a production line as simply large scale, missing that it is continuous and standardised, so any bespoke element breaks it.
- Claiming a line always lowers costs without mentioning the capital outlay, or what happens when demand falls well below capacity.
- Treating team based cells as the same thing as batch working, when the distinguishing feature is a team completing a whole unit.
- Confusing total production with output per worker, so an answer reports a bigger factory output as efficiency when the workforce grew as well.
- Assuming a rise automatically lowers costs, ignoring the training bill, the capital cost and any bonus paid to achieve the increase.
- Citing motivation theory with no mechanism, when the mark depends on explaining how Herzberg's motivators or Taylor's piece rates change the pace of work.
- Treating efficiency and productivity as the same thing; productivity is output per worker per hour, while efficiency is cost per unit, so a factory can raise productivity and still be inefficient if the extra output is scrapped, discounted or left unsold
- Claiming capital intensive production is always cheaper, which ignores that the heavy fixed cost has to be spread over high volume before unit cost falls below the labour intensive alternative
- Dismissing labour intensive production as backward, when craft bakeries, tailors and small hotels choose it deliberately because customers pay for variety and human service