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Economics IGCSEPDF 70
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equipment) relative to labour (e.g., robotic
car assembly).
Labour-Intensive: Production methods that
rely heavily on labour (workers) relative to
capital (e.g., hair dressing, tailor-made
clothing).
Economies of Scale (EoS): The fall in
long-run average costs of production as
the scale of output increases.
Diseconomies of Scale (DoS): The rise in
long-run average costs of production as
the scale of output increases.
Notes: Production and
Productivity
Factors Affecting Productivity
Theskills,
education, and trainingofthe
workforce. Higher qualitylabouris
generally more productive.
Qualityof Labour:
● Quality of Capital: Theageand
technological sophisticationofthe
machinery and equipmentused.
Modern capital is typicallymore
efficient.
● Management Efficiency:Howwell
the firm's resources are organised
and managed, including motivation
and communication methods.
Division of Labour/Specialisation:
Breaking down tasks into specific
roles allows workers to become
highly skilled and faster (see 3.3.4
notes).
Importance of High Productivity
● For the Firm: Lower average costs,
which increases profits and makes
the firm more competitive.
● For Workers: Higher productivity
can lead to higher wages, as the
worker is generating more revenue
for the firm.
● For the Economy: Increased
national output (GDP) and higher
international competitiveness due to
lower prices.
Notes: Economies and
Diseconomies of Scale
Internal Economies of Scale (Advantages
from within the firm)
Large firms can
often borrow money more cheaply
(lower interest rates) and raise large
sums by selling shares.
● Marketing EoS: Large firms can
spread the cost of advertising and
marketing over a much larger
volume of output (e.g., a national
advertising campaign is cheaper per
unit for a large company).
Financial EoS:
Technical EoS: Large-scale
production allows firms to use highly
specialised, large-capacity
machinery (e.g., a massive oil
tanker) and use the Division of
Labour effectively.
● Managerial EoS: Large firms can
afford to employ specialist managers
(e.g., HR, Finance) who are highly
skilled in their area, improving
efficiency.
● Risk-bearing EoS: Large firms can
spread their risks by diversifying
their production across different
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