GreenLoop Ltd makes reusable food containers. It is considering an automated production line. Table 1 shows monthly estimates.
| Measure | Current method | With automation |
|---|---|---|
| Monthly output | 20,000 | 32,000 |
| Monthly total cost | £204,000 | £250,000 |
| Monthly labour cost | £96,000 | £78,000 |
| Selling price per container | £9 | £9 |
| Initial investment | £0 | £480,000 |
[ITEM A] A three-month test produced more consistent containers and cut the defect rate. A retailer has asked GreenLoop for larger deliveries, and demand for reusable packaging is forecast to grow.
[ITEM B] The automated line would be bought with a five-year loan. Twelve assembly jobs may no longer be required, and the owner has promised to support secure, fairly paid work in the local community.
Define the term 'average cost'.
Using Table 1, calculate GreenLoop Ltd's forecast monthly profit with automation.
Explain two ways automation could increase GreenLoop Ltd's productivity.
Using Table 1, analyse how automation could affect GreenLoop Ltd's costs and profit.
Do you think GreenLoop Ltd should install the automated production line? Use Items A and B and your own economic knowledge to justify your view.
138 exam-style questions on AQA GCSE Economics 1.4 Production, costs, revenue and profit, covering 1.4.1a Business objectives, 1.4.1b Types of costs and revenue, 1.4.1c Calculating profit, 1.4.1d Profit as an incentive to produce, 1.4.1e Moral and ethical considerations, 1.4.2a Production versus productivity, 1.4.2b Factors and benefits of productivity, 1.4.3a Economies of scale and business behaviour, 1.4.3b Types of economy of scale, and 1.4.3c Diseconomies of scale. Each one has a worked solution and a mark scheme showing where the marks go.