The Nature of Operations (Cambridge (CIE) A Level Business): Flashcards
Exam code: 9609
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Define factors of production.
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Define factors of production.
Factors of production are the resources used to produce goods and services.
What are the four factors of production?
The four factors of production are land, capital, labour and enterprise.
Capital is any ______ resource that is used to produce goods or services, such as tools, buildings and machines.
Capital is any man-made resource that is used to produce goods or services, such as tools, buildings and machines.
True or False?
Land includes the factories and machinery a business uses in production.
False.
Land is non-man-made natural resources available for production. Factories and machinery are capital.
What does labour involve in the production process?
Labour is the human input into production and involves mental or physical effort. It can be skilled or unskilled.
What role does an entrepreneur play in production?
An entrepreneur takes risks in setting up or running a firm. They decide on the combination of resources needed to produce goods or services with the aim of making a profit.
True or False?
The production of any good or service requires a combination of all four factors of production.
True.
Every good or service needs land, labour, capital and enterprise working together, although the mix varies between businesses.
What happens in the transformational process?
A business takes inputs and transforms them to produce outputs that customers want to buy.
What types of inputs are used in the transformational process?
Inputs may be financial, human or physical resources, as well as enterprise.
True or False?
The only outputs of the transformational process are goods and services.
False.
As well as goods and services, outputs also include by-products and waste.
Define adding value.
Adding value is the process of using raw materials so that the end product is worth more than the cost of the raw materials used to create it.
Why must a business add value to the materials and components it buys?
If value is not added, the business cannot pay its fixed costs and no profit will be made.
Methods of adding value, such as branding, design and unique selling points, allow product _____________, so the business can charge a higher selling price.
Methods of adding value, such as branding, design and unique selling points, allow product differentiation, so the business can charge a higher selling price.
Define efficiency.
Efficiency means producing goods or services with the minimum amount of waste, time or resources.
Define effectiveness.
Effectiveness means achieving the business's objectives by doing the right things to satisfy customer needs and meet goals.
Being effective means meeting customer needs, which leads to _____ and repeat purchases.
Being effective means meeting customer needs, which leads to loyalty and repeat purchases.
Define productivity.
Productivity is the volume of output produced per worker (or per hour, machine, etc.), showing how well available resources are used to generate output.
How can improved productivity lead to higher profit margins?
Improved productivity and lower costs can increase the amount of profit made per sale.
How is labour productivity calculated?
Labour productivity is calculated using this formula:
Labour productivity = Output ÷ Number of workers
A business's labour productivity rises from 920 to 1,150 units per worker. What is the percentage change in labour productivity?
Labour productivity has risen by 25%. This is (1,150 − 920) ÷ 920 × 100.
True or False?
Higher labour productivity increases the labour cost per unit.
False.
High labour productivity reduces the labour cost per unit, improving efficiency and giving the business a potential competitive edge.
Define sustainability.
Sustainability means meeting current needs without compromising the ability of future generations to meet their own needs.
What are three ways a business can make its operations more sustainable?
A business can use renewables in production, reduce water use, use green transport such as electric vans, avoid toxic substances, use renewable energy or implement recycling.
True or False?
Improving sustainability can lower a business's long-term costs.
True.
Reducing energy use, waste and materials can lower a business's costs over the long term.
How can improved sustainability give a business a competitive advantage?
A strong reputation for sustainability helps a business stand out from rivals. Eco-conscious customers prefer sustainable businesses, which improves brand image.
Improving sustainability helps a business meet environmental __ and shows it is acting responsibly.
Improving sustainability helps a business meet environmental laws and shows it is acting responsibly.
Define capital-intensive production.
Capital-intensive production predominantly uses machinery and technology in the production process.
True or False?
Capital-intensive production is common in developed countries where labour costs are relatively high.
True.
Where labour costs are high, businesses use machinery and technology instead, especially for large-scale production of standardised products.
Define labour-intensive production.
Labour-intensive production predominantly uses physical labour in the production process.
The delivery of ______ is usually more labour-intensive than manufacturing.
The delivery of services is usually more labour-intensive than manufacturing.
Which factors influence the method of production a business uses?
The method depends on the level of output required, the nature of the product, whether it is standardised or customised and the level of automation used.
Define job production.
Job production is where products are made to meet the specific requirements of individual customers, with each item produced separately.
Why can job production be very profitable?
Unique, specialised products made by skilled craftspeople can command high prices. This means job production can add significant value.
Define batch production.
Batch production is where products are made in groups or batches, with each batch going through the entire production process before the next batch begins.
True or False?
Batch production avoids idle time because equipment never needs to be reset between batches.
False.
Setting up equipment for each batch can be time-consuming and may result in idle time between batches.
Define flow production.
Flow production is where a product is made in a continuous sequence of operations on a production line.
In flow production, different tasks are allocated to different workstations so that workers specialise, which is known as ________________.
In flow production, different tasks are allocated to different workstations so that workers specialise, which is known as division of labour.
Define mass customisation.
Mass customisation offers a range of customisable options within a standardised production process, alongside the low unit costs typically associated with flow production.
What are the drawbacks of mass customisation for a business?
Mass customisation usually requires heavy capital investment in technology. It also tends to lead to higher variable costs than standardised, mass-produced items.
What problems might a business face with workers when changing its method of production?
Some workers' skills may no longer be needed, leading to redundancies. Others may be resistant to change, and moving to less skilled roles could demotivate them and lower productivity.
True or False?
Using loans to finance a new method of production reduces a business's gearing.
False.
Loans increase fixed costs and are likely to increase gearing, making it harder to borrow more finance in the future.
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