Firms and production
- Cambridge IGCSE
- Economics
Speaker notes: Title slide: Firms and production
Learning Objectives
- Understand the demand for factors of production
- Compare labour-intensive and capital-intensive production
- Explain production and productivity
Speaker notes: Learning objectives: Understand key concepts about firms and production
Starter Question
- How do firms decide how many workers to hire?
Speaker notes: Starter question: Encourage students to think about the factors influencing hiring decisions
Demand for Factors of Production
- Factors of production include land, labour, capital, and enterprise
- Firms demand factors to produce goods and services
- Demand depends on the price of the factor and the price of the output
Diagram explained
The PPC shows the maximum output of two goods an economy can produce. Points on the curve show efficient production, inside the curve shows underutilisation, and outside the curve is unattainable with current resources.
- Identify points on the curve for efficient production
- Points inside the curve show underutilisation of resources
- Points outside the curve are unattainable with current resources
Speaker notes: Explain that firms need factors of production to create goods and services. Discuss how the price of factors and the price of the output affect demand
Labour-Intensive Production
- Uses more labour than capital
- Common in industries with low technology
- Examples: Agriculture, textiles
Speaker notes: Discuss examples of labour-intensive industries and why they use more labour than capital
Capital-Intensive Production
- Uses more capital than labour
- Common in industries with high technology
- Examples: Automobile manufacturing, electronics
Diagram explained
This diagram shows elastic demand for labour. A small change in wage rates leads to a large change in the quantity of labour demanded. This typically happens in industries where labour can be easily replaced by capital or where workers are easily trained.
- Identify the flat demand curve
- A small change in wage rates leads to a large change in quantity demanded
Speaker notes: Discuss examples of capital-intensive industries and why they use more capital than labour
Production
- Production is the process of creating goods and services
- Firms combine factors of production to produce output
- Production can be measured in physical units or value
Speaker notes: Explain the process of production and how firms combine factors to create output
Productivity
- Productivity measures output per unit of input
- High productivity means more output with the same inputs
- Firms aim to increase productivity to reduce costs
Speaker notes: Discuss the importance of productivity and how firms can increase it
Worked Example: Calculating Productivity
- A factory produces 1000 widgets using 50 workers
- Calculate productivity: 1000 widgets / 50 workers = 20 widgets per worker
- If productivity increases to 25 widgets per worker, the factory now produces 1250 widgets with the same number of workers
Speaker notes: Walk through the calculation step by step to show how productivity is measured and how it can increase
Common Mistakes and Exam Tips
- Mistake: Confusing labour-intensive and capital-intensive production
- Tip: Remember that labour-intensive uses more labour, capital-intensive uses more capital
- Mistake: Forgetting to consider the price of factors and output when discussing demand
- Tip: Always relate the demand for factors to the price of the factor and the price of the output
Speaker notes: Highlight common mistakes and provide tips to avoid them in exams
Key Terms
- Factors of production: Resources used to produce goods and services
- Labour-intensive: Using more labour than capital
- Capital-intensive: Using more capital than labour
- Productivity: Output per unit of input
Speaker notes: Review key terms to ensure understanding
Plenary Questions
- What are the factors of production?
- Give an example of a labour-intensive industry
- Give an example of a capital-intensive industry
- How do you calculate productivity?
Speaker notes: Quick-check questions to review key concepts
Summary
- Firms use factors of production to create goods and services
- Labour-intensive and capital-intensive production methods depend on the industry
Speaker notes: Summarise the key points covered in the lesson