1. 4AS.1

2. Recap: Added Value and Profit
Objectives
What is added value?
What is profit?

3. Added Value and Profit

4. Added Value = Value of Outputs less cost of production
Inputs
Processes
Outputs
Added Value = Value of Outputs less cost of production

5. The Production Process
Labour
Capital
Land
Resources
Inputs
Enterprise
Processes
Production
Finished goods and services
Outputs
Waste
Value added reinvested into inputs or marketing, research and administration

6. The Production Process
Be very careful with these diagrams. They look a bit like a formula; if you put in X you should get out Y. Not so! Some companies may get 0.5Y whereas another may get 3Y.
Choose 2 industries, one a service and one a good, and construct a production process for it.

7. How to increase value added?
Two general methods:
Increase value of outputs
Produce more with the same inputs.
Increase price through marketing activities.
Decrease cost of inputs
Use fewer inputs.
Use cheaper inputs.

8. Efficiency
Efficiency is concerned with how much output a firm can generate from a particular level of input. It is often measured by a firm’s labour productivity, i.e. on average, how much does each worker produce in a given period of time?
Labour productivity = total output ÷ number of workers
Efficient firms can maximize profits by keeping unit cost low.
A firm with 10 workers that produces 100 units of output per week is far more efficent than a rival which can only managed the same output with 20 workers.
Teacher’s note: Productivity per worker for the first firm is 10 units; productivity per worker for the second firm is only 5. If the two firms pay similar wages, the second firm’s unit costs will be double that of the first.
Photo: © O.V.D., shutterstock.com
Calculate the labour productivity for the two firms in the above example. 8

9. Specialization and division of labour
Specialization breaks up the production process into separate functions, allowing workers to concentrate on one area.
What is specialisation?
What are the advantages and disadvantages of specialisation?
What specialization might occur in a bike factory? 9

10. What effects labour efficiency
Page 385 Activity 20.1
Effects on labour productivity:
Motivation ?

11. Efficiency 2
Why would it be inappropriate to compare the efficiency of an Indian company with a Japanese company using labour productivity?
A more appropriate measure of efficiency would be capital productivity.
Capital productivity = total output ÷ capital employed

12. Capital Productivity Page 386 activity 20.2
Effects on capital productivity: ?

13. Effectiveness
Effectiveness is how well you have achieved your objectives. It is not efficiency!
For example to make a teacher more efficient, you could placed 60 pupils in his/her class. Would this be effective?
Make notes on efficiency and effectiveness page 386.

14. 4AS.1

15. Job Production

16. Batch Production

17. Flow Production

18. Flow Production

19. Mass Customisation
BMW X3

20. Production methods What is:
Job production (p392)
Batch production
Flow production
Mass customisation
Give examples of each and give examples of their advantages and disadvantages (p397)

21. Production methods compared21

22. Why do companies need to be flexible in what they produce?
3 answers to the question above please.
Make notes on CAD and CAM page 395.

23. Economies and diseconomies of scale
Teacher’s note: Examples of different types of economies of scale include:
Purchasing: discounts for buying in bulk.
Technical: spreading the cost of a new, faster piece of machinery.
Managerial: being able to employ specialist managers (marketing, financial, human resources) to improve efficiency.
Marketing: spreading the cost of a major advertising campaign.
Financial: banks often charge lower interest rates to larger firms as they are seen as less of a risk.
Photos: soap bottles © tonobalaguerf, shutterstock.com; welding robots © Rainer Plendl, shutterstock.com; milk bottles © Semen Lixodeev, shutterstock.com; empty warehouse © jkitan, shutterstock.com; wine bottles © mrfotos, shutterstock.com 23

24. Economies and diseconomies of scale
Page 408
What is an economy of scale?
Make notes on the 5 types of economies of scale.
What is a diseconomy of scale?
Make notes on the 3 types of diseconomies of scale.

25. Location of business Location can be divided into 2:
National (where should a company locate within a country).
International (in which country should a company locate).

26. National Location of Business
Nissan page 86 Mapskills
Give reasons from the map why Nissan has located there?

27. National Location Factors
Transport costs
Availability of employees
Labour costs
Government grants
Proximity to market
Site costs
Demographics

28. International Location Factors
Free Trade Zones EU
NAFTA
Government policies
Employment laws
Proximity to international markets – transport costs.