It is vital to a company to ensure they are efficient.
There are number of different markets, if a firm in a competitive market has suffered in the past from ‘over capacity’. They therefore have to keep a careful eye on how their costs compare. One of the ways they may do this is to look at the level of average costs. The average cost is calculated as follows: AVERAGE COST = TOTAL COST OUTPUT This gives the cost per unit of production, and so one measure of efficiency. Another measure would be to look at how much each particular factor of production (labour / capital / land) manages to produce. In this way we can measure productivity. For example to calculate labour productivity:LABOUR PRODUCTIVITY = OUTPUT (in a certain time) NUMBER OF EMPLOYEES This can be a useful measure but does need careful interpretation.
For example, who exactly do you include – all employees, or just those directly involved in production? You also have to ensure that you always calculate it consistently or it will be very difficult to draw useful conclusions. Labour intensive – this is where the proportion of labour used in producing the product is relatively high. Labour will usually be used instead of capital.
Capital intensive – this is where techniques are used to produce that use relatively more capital than labour. Many industries are now like this including the car and steel industries. The technique that a company uses depends on several things: The size of the company – small companies are often not in a position to afford expensive capital equipment.
Even if they could they are often not able to use it enough to justify the cost.The cost of the factors of production – even though a machine may be available to do the job, it may not be worthwhile if the amount of labour required costs less. Firms therefore look carefully at the cost of labour and capital before deciding how much to use. The product – some products lend themselves better to being produced by capital than others are.
Mass-produced everyday items are far more likely to be produced in a capital-intensive way, whereas services and products with a more individual slant are more likely to be produced using a large proportion of labour.There are various factors, which affect the choice of production processes; organisations are always situated with problems between alternative production factors. An example might be for a carpenter to purchase any necessary tools before he or she carries out any tasks. Business must take into consideration that they do not necessarily have the choice with regard to the adoption of different production methods. However, firms may be influenced to purchase new machinery in order to keep up with rivals, or competition in the area. The method of production used may depend on various factors.Market price might be a major influence on the choice of production, of a firm, due to the overall demand for the product for example confectionery, hammers etc be produced using flow or batch production, as the demand is high.
The market size will also depend on how much competition there is. Below is a list of the sources that I had to use in order to produce this essay concerning production process and the factors, which effect its efficiency. I used a number of levels textbooks and the World Wide Web.