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Firms: Types, Production and Costs: Question 4

Syllabus 3.5

Multiple choice 1 mark

Silverline Toys is a small workshop that makes wooden toy trains. Last year, it employed 12 workers who together made 2400 toy trains. This year, after investing in a new automated cutting machine, it employed only 8 workers, who together made 2000 toy trains.

Which of the following correctly describes the change between last year and this year?

Choose an answer to check it, then compare with the worked solution below.
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Worked solution

Step 1: Calculate production (total output) for each year

Production is simply the total quantity made:

  • Last year: 2400 toy trains.
  • This year: 2000 toy trains.

Total output fell from 2400 to 2000, a decrease.

Step 2: Calculate labour productivity (output per worker) for each year

Labour productivity is output divided by the number of workers:

Last year: 240012=200 toy trains per worker\text{Last year: } \frac{2400}{12} = 200 \text{ toy trains per worker}

This year: 20008=250 toy trains per worker\text{This year: } \frac{2000}{8} = 250 \text{ toy trains per worker}

Labour productivity rose from 200 to 250 toy trains per worker, an increase.

Step 3: Explain why this happened

The new automated cutting machine means each remaining worker can produce more toy trains than before, even though fewer workers are now employed and total output is lower than last year. Capital (the machine) has substituted for some labour, raising output per worker while total output has fallen because far fewer workers remain overall.

Step 4: Match to the options

Production fell (2400 →\to 2000) while productivity rose (200 →\to 250 per worker), which is exactly option C. Options A and D both assume production and productivity move together, and option B has the direction of productivity the wrong way round.

Final answer

Production decreased but productivity increased, option C.