Economic Systems and Production Possibility Curves: Question 5

Worked solution

Part (a): Two advantages to the business

Higher productivity per worker. When each worker repeats only one stage of production (for example, always sanding chairs) rather than doing every stage in turn, they become faster and more skilled at that one task through practice, a “learning by doing” effect. No time is lost switching tools, materials or mindset between very different tasks (cutting, assembling, sanding, varnishing), as happens when one worker does all four stages themselves. With the same six workers now producing more chairs per day, total output rises.

Lower average cost of production. Because the same workforce produces more chairs, the labour cost per chair falls. In addition, if each worker is now doing only one stage, the business can justify buying equipment suited specifically to that stage (for example, a fixed sanding station) and use it far more intensively than if each worker only used it occasionally between other tasks, spreading the cost of this equipment over a larger output and lowering the average cost per chair further.

Part (b): A disadvantage to the workers

Repeating the same narrow task all day, every day (for example, only ever sanding chairs), can become monotonous and boring, which is likely to reduce workers’ job satisfaction and motivation compared with making a whole chair themselves and seeing a finished product from start to finish. Workers may also become deskilled, only ever learning one small part of the overall production process. This leaves them more dependent on remaining in that one role, and potentially at a disadvantage if they ever need to find work elsewhere, compared with a worker who has learned the full range of chair-making skills.

Part (c): Discussion. How far do the benefits depend on the size of the market?

The advantages identified in part (a), higher output per worker and lower average cost, rely on there being enough continuous demand for chairs to keep every specialised worker fully occupied at their own stage throughout the working day. This reflects the classic economic principle that the division of labour is limited by the extent of the market.

If demand for the business’s chairs is small, seasonal or unpredictable, splitting the work into separate stages could actually work against the business: for instance, the varnisher might regularly be left waiting for chairs to reach them from the sanding stage, creating idle time that a single all-round worker making a whole chair would not experience in the same way. Any specialised equipment bought for one stage would also be used only occasionally, so its cost could not be spread over enough chairs to lower the average cost per unit (the fixed cost might not be justified at all for a very small order size. In this situation, the disadvantages set out in part (b)) monotony, deskilling and rigidity, could easily outweigh the productivity gains, since the business is not producing anywhere near enough to benefit fully from them.

By contrast, if the market for the chairs is large and demand is steady (for example, a large, ongoing retail contract), the business can keep every specialised worker continuously busy at their own stage. The productivity gains from repetition and the lower average cost from spreading equipment costs over many units can then be fully realised, making the reorganisation clearly worthwhile.

Conclusion: the benefits of introducing division of labour in this business depend heavily on the size and stability of the market for its chairs. For a very small or irregular market, the costs of specialisation (idle time, rigidity, lower worker morale) may outweigh the benefits, so the owner may be better off keeping the current arrangement; for a large, steady market, division of labour is likely to raise output and lower costs enough to make the change worthwhile.

Final answers

• (a) Two advantages: higher productivity per worker (learning-by-doing, no time lost switching tasks) and lower average cost per chair (more output from the same workforce, more intensive use of stage-specific equipment)
• (b) Disadvantage to workers: monotonous, repetitive work reducing job satisfaction, and deskilling/dependence on one narrow stage
• (c) The benefits depend on the extent of the market: division of labour pays off mainly where demand for chairs is large and steady enough to keep every specialised worker continuously employed