Chapter 20

Firms and production

 All productive organisations will need factors of production. They will
try to combine land, labour and capital in the most efficient and
productive way to minimize their costs of production.
 A labour-intensive organisation will employ more labour than capital
equipment and machinery.
 A capital-intensive organization will employ more capital equipment
and machinery and relatively few workers.
 The amount of labour or capital demanded by a firm will depend on the:
 Demand tor goods and services by consumer. The more consumers
are willing and able to buy, the more labour and capital firms will need .
 Price of labour and capital. Just like most other goods and services,
the higher the wages of labour and the higher the cost of buying or
hiring equipment, machinery and other capital goods, the less labour and
capital firms will demand
 Productivity of labour and capital. The more output or revenue
labour and capital help to produce the more profit they will generate
over and above the cost of employing them.
Productivity
 Productivity measures the amount of output or revenue produced by a
given amount of labour capital and/or materials.
 Productivity will have increased it:
 more output or revenue is produced from the same amount of resources
 the same output or revenue can be produced using fewer resources.
A firm that fails to increase productivity at the same pace or a faster rate than
rival firms have higher production costs and therefore lower profits than their
competitors.
Firms may be able to increase factor ptoductivity in the following ways:
 Training employees to improve their skills.
 Rewarding employees who increase productivity with performance related
Payments.
 Improving the working environment to increase employee job satisfaction.
 Introducing new production processes and working practices to reduce
waste.
 Replacing old equipment and machinery with new technologies.
 Replacing labour with modern computer-operated machinery.