 6.00 Understand economics trends and communication.
 6.01 Analyze cost/profit relationships to guide business decision-making.
Specialization of labor:
 People work at one part of the assembly or service
 The person becomes an expert and very efficient at doing the work
 Specialization by trade or profession
 Specialization by stage of production:
Division of labor:
 Specialization by task (a particular part of a job)
 Definitions
Depth of jobs:
 Defined as the amount of control you have over the tasks that you do
 Low depth: There are strict guidelines you must follow, and you make very few decisions.
 High depth: You follow general guidelines and set your own pace.
Scope of jobs:
 Defined as the number of different operations you do on the job and the frequency with which you do them
 The lower your task level, the lower the scope of the job
 Low scope: The job is to put doors on cars on an assembly line.
 Higher scope: The job is to put doors on cars, put seats in cars, and check the steering mechanism.
 Specialization
Describe how resources are involved in specialization.
 Natural resources: We locate businesses where they can be the most successful (e.g., ski lodge in the mountains close to the
slopes, orange groves in states with warm climates.
 Capital goods: Specialized capital goods contribute to increased production (e.g., use of robots on assembly lines).
 Human resources: This occurs when people use their different skills and abilities in jobs for which they are best suited. People
should do what they do best so that the most goods and services can be produced.
 Specialization
Identify forms of specialization of human resources.
 Describe specialization by trade or profession.
 This is the type of work you perform to earn a living (e.g., teachers, farmers, doctors, plumbers, artists, etc.).
 Describe specialization by stage of production.
 This form occurs when more than one state of production is needed to change a raw material into a finished product. The
process of making the best use of labor resources in the production of goods and services
 One person assembles the parts of a car door another person attaches it to the car frame, another checks it for
proper movement
 Adam Smith – straight pins
 Describe specialization by task.
 This form occurs when jobs are so specialized by a worker does only one small part of the total job (e.g., in a textile mill,
one worker cleans wool, another spins it into yarn, another dyes the yarn, and another weaves it into a woolen fabric).
 Specialization
Explain the relationship between the depth and scope of a job.
 The depth of the job measure a worker’s control over how a job is done
 The scope of a job refers to how many parts of the assembly or service the worker is responsible for performing
Describe the advantages of specialization.
 Simplified worker training
 Increased employee interest and satisfaction
 Increased quality of work
 Specialization
Increased level of skill
Increased production rates
Ease of transferring to a similar job
Explain the disadvantages of specialization.
 Increased interdependency
Specialization
 Increased boredom on the job
Decreased pride in work
 Decreased morale and enthusiasm for the job
 Increased chance of obsolescence because of technological advances
 High degree of specialization may cause difficulty transferring or obtaining another job
Describe ways to overcome the disadvantages of specialization
 Job enlargement: Management may combine job tasks to restore wholeness (e.g., instead of limiting salespeople strictly to selling
merchandise, their jobs may be enlarged to help with displays, restocking merchandise, etc.).
 Job rotation: Managers may also rotate employees periodically so that they learn new job tasks and see how their old tasks relate
to the new tasks.
 Job enrichment: Managers add interest to a task to increase a job’s depth, allowing workers to make more decision, set their own
pace, and supervise others.
 Job satisfaction: Managers may ask for and use employee suggestions; allow flexible or alternative work schedules; praise work
well done; and provide cash incentives, contests, and bonuses.
 Labor union: Group of employees (can be in different companies) that do much the same kind of work or are in the same industry
that often participate in collective bargaining. A labor union is an organization of wage earners or salary workers established for
the purpose of protecting their collective interests when dealing with employers.
 Local: The union in that particular company or area
 National: The headquarters of the whole union
 Labor Vocabulary
 Federation: A group of unions or labor organizations that are in some way coordinated or connected. Adds more power to the
union because other unions will support an “action.”
 Collective bargaining: consists of negotiations between an employer and a group of employees so as to determine the conditions
of employment. The result of collective bargaining procedures is a collective agreement. Employees are often represented in
bargaining by a union or other labor organization.
 Labor Vocabulary
 Strikes: A work stoppage on the part of the union
 Picketing: Method employed to raise awareness of the cause, protesters usually carry signs
 Boycotts: Stopping the buying of a company’s products, a strike tool
 Featherbedding: Adding workers that aren’t needed to protect jobs (coal man on a diesel train)
 Lockouts: Company action to stop workers from coming to work
 Injunctions: Legal action to stop an action on the part of the company or the union
 Strikebreakers: People hired to replace union workers
 Labor Unions
 Identify reasons that labor unions form.
 A means of collectively bargaining with employers for fair wages and decent working conditions
 Workers feel unfairly treated by management or the owners
 Identify types of labor issues.
 Safety (working conditions, hours, training, unsafe materials or equipment)
 Fair pay (company is making lots of money but pays poor wages)
 Classify types of unions.
 Craft – skilled laborers (carpenters, electricians, etc)
 Industrial – workers in the same industry regardless of skill
 Labor Unions
 Describe levels of union organization.
 National – headquarters of all the locals
 State – headquarters for the locals within a single state
 Local – Regional (think city or part of a city, county)
 IN-PLANT LOCAL
 a union local restricting membership to one specific workplace, working for one particular employer
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 CITY-WIDE LOCAL
 a union local whose jurisdiction is the named city
 COUNTY-WIDE LOCAL
 a union local whose jurisdiction is the named county
 STATE-WIDE LOCAL
 a union local whose jurisdiction is the named state
 PROVINCE-WIDE LOCAL
 a union local whose jurisdiction is the named province
 REGIONAL-LOCAL
 a union local whose jurisdiction is the named region
 Shop (plant, firm, company)
 Members (rank and file)
Labor Unions
Describe types of union organization.
 CLOSED SHOP
 all employees are supplied by the labor union exclusively, typically through the hiring hall, and are required to
maintain union membership in order to maintain employment
 UNION SHOP
 any employee can be procured from any source and once hired, the employee is required to maintain union
membership in order to maintain employment
 AGENCY SHOP
 any employee may or may not belong to the union organization, yet all employees are required to pay dues and
other fees for the package of services supplied by union organization
 OPEN SHOP
 any employee voluntarily belong to the union and may voluntarily pay dues and other fees to the union
organization
Labor Unions
Describe the collective bargaining process.
 The company management team negotiates with union representatives and then puts the agreed upon contract proposal
before the membership for ratification
 If ratified, the contract becomes the new work rules, pay and benefits for the selected time
 Collective bargaining is governed by federal and state statutory laws, administrative agency regulations, and judicial
decisions. In areas where federal and state law overlap, state laws are preempted.
Explain types of union negotiation strategies.
 Sick-out, walk-out, boycotts, picketing, strike, work slow-down
Labor Unions
Describe types of management negotiation strategies.
 Tying concessions to important give-backs, lockouts, hiring strike breakers, injunctions
Explain the effects of unionism on workers.
 Workers pay a membership fee and agree to let the company and union negotiate terms of employment and pay
 A level of protection from poor managers
Describe the effects of unionism on businesses.
 Can negotiate with a few people rather than each employee
 Costs tend to rise, but so can productivity
 Economists who study unions—including some who are avowedly pro-union—analyze them as CARTELS that raise wages
above competitive levels by restricting the SUPPLY of labor to various firms and industries.
Stages of production:
 Primary production involves the extraction of raw materials (e.g. coal, iron, agricultural commodities). Raw materials can be:
 Extracted – e.g. coal, iron ore, oil, gas and stone
 Harvested / collected – e.g. fish
 Grown – e.g. timber, cereal crops
 Secondary production involves transforming raw materials into goods. There are two main kinds of goods:
 Consumer goods – e.g. washing machines, DVD players. As the name implies, these are used by consumers
Industrial / capital goods – e.g. plant and machinery, complex information systems. Industrial and capital goods are used
by businesses themselves during the production process
Tertiary production is associated with the provision of services (an intangible product). Firefighters, taxis drivers, lawyers,
bankers.
Definitions
Theory of production: an effort to explain the principles by which a business firm decides how much of each commodity that it
sells (its “outputs” or “products”) it will produce, and how much of each kind of labour, raw material, fixed capital good, etc., that
it employs (its “inputs” or “factors of production”) it will use.
Production function: The production function relates the output of a firm to the amount of inputs, typically capital and labor. Keep
in mind that the production function describes technology, not economic behavior.
Definitions
Increasing returns: Adding resources or workers will result in an increasing ratio of product (marginal return)
Diminishing returns: Adding resources or workers will result in an decreasing ratio of product (marginal return)
Law of diminishing returns: When increasing amounts of one factor of production are employed in production along with a fixed
amount of some other production factor, after some point, the resulting increases in output of product become smaller and
smaller. (Tomato/fertilizer example)
Definitions
Law of variable proportions: states that as the quantity of one factor is increased, keeping the other factors fixed, the marginal
product of that factor will eventually decline.
Marginal product negative returns: in all productive processes, adding more of one factor of production, while holding all others
constant, will at some point yield lower per-unit returns
Definitions
Marginal cost: The marginal cost of an additional unit of output is the cost of the additional inputs needed to produce that output.
Total revenue: The revenue received by a firm for the sale of its output. Total revenue is one two bits of information a firm needs
to calculate economic profit, the other is total cost. In general, total revenue is the price times quantity--the price received for
selling a good times the quantity of the good sold at that price.
Marginal revenue: The change in total revenue resulting from a change in the quantity of output sold. Marginal revenue indicates
how much extra revenue a firm receives for selling an extra unit of output. It is found by dividing the change in total revenue by
the change in the quantity of output.
Production
Explain the stages of production.
 In Stage I, marginal product is positive and increasing. In Stage II, marginal product is positive, but decreasing. And in
Stage III, marginal product is negative.
 Stage I - companies will see increased productivity, or output, with each addition of a non-fixed variable. For example, if
the fixed variable is property, a non-fixed variable might be the addition of new employees.
 Stage II - This is the stage that all companies strive for. Here, a business will be able to optimize its output. Economists say
this is stage in which "rational" firms should operate.
 The last stage of production is where the economic phenomenon referred to as "the law of diminishing returns" appears.
Production
Describe the impact of the law of diminishing returns on production decisions.
 More work and resources result in less production per unit
Explain how total revenue and marginal revenue are used to determine the amount of output that will generate the most profit.
 Total revenue is all the income generated by selling the products the company makes
 Marginal revenue is how much money an additional item will produce after it is sold.
 Marginal revenue helps the company calculate whether to make a few more items
 Marginal revenue is the extra revenue generated when a firm sells one more unit of output. It plays a key role in
the profit maximizing decision of a firm relative to marginal cost.
total revenue and marginal revenue
The marginal revenue received by a firm is the change in total revenue divided by the change in quantity, often expressed as this
simple equation:
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marginal revenue = change in total revenue
change quantity