9609 · 4.1.3
Capital intensive and labour intensive operations flashcards
Revision flashcards for Cambridge 9609 Capital intensive and labour intensive operations (syllabus 4.1.3). Flip, recall, then mark a real past-paper question.
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Capital intensive?
High proportion of capital (machinery) to labour in production.
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Labour intensive?
High proportion of labour costs — e.g. hand tailoring, care homes.
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Break-even link?
Capital intensive = higher fixed costs → higher break-even (5.4.4).
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When choose capital?
High volume, stable demand, expensive labour, precision needed.
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When choose labour?
Low volume, custom work, low wages, flexible skills.
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Risk of automation?
High initial investment; obsolescence; redundancy costs.
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Link to 5.2 finance?
Capital investment may need loans/leasing (5.2.2).
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Developing country?
Lower wages favour labour intensity vs automated rich markets.
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What is a capital-intensive process?
A production process that uses a high proportion of machinery, equipment, and technology relative to the amount of labour. It is characterised by high fixed costs.
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Identify two key features of the cost structure of a labour-intensive firm.
1. Low fixed costs, as there is less investment in expensive machinery. 2. High variable costs per unit, as wages are paid for each unit of output or hour worked.
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What is meant by 'economies of scale' in the context of capital-intensive production?
The cost advantages gained as output increases. The high fixed costs of purchasing and running machinery are spread over a larger number of units, which reduces the average cost per unit.
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Why might a business in a country with an ageing population and high wages choose a capital-intensive method?
Labour is likely to be scarce and expensive, making machinery a more cost-effective long-term option. Automation can also overcome skills shortages and ensure consistent production levels, which might be difficult to maintain with a shrinking workforce.
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State one strategic advantage and one strategic disadvantage of labour-intensive production.
Advantage: It offers high flexibility to adapt production to meet specific customer requirements or changes in demand. Disadvantage: The business is vulnerable to rising wage costs and potential disruption from industrial relations issues, such as strikes.