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The travel and tourism industry (a) Explain the likely impact of diminishing marginal productivity of labour on cabin crew staffing levels - Edexcel - A-Level Economics A - Question 6 - 2021 - Paper 1
Question 6
The travel and tourism industry (a) Explain the likely impact of diminishing marginal productivity of labour on cabin crew staffing levels. Refer to Extract A in yo... show full transcript
Worked Solution & Example Answer:The travel and tourism industry (a) Explain the likely impact of diminishing marginal productivity of labour on cabin crew staffing levels - Edexcel - A-Level Economics A - Question 6 - 2021 - Paper 1
Step 1
Explain the likely impact of diminishing marginal productivity of labour on cabin crew staffing levels.
Answer
Diminishing marginal productivity refers to the reduction in the output from an additional unit of input, in this case, labor. As more cabin crew members are added, the effect on productivity tends to decrease after a certain point. Conversely, if there are too few cabin crew members, safety and service quality may diminish. Hence, airlines must carefully balance staffing levels to ensure optimal efficiency and cost-effectiveness while also meeting safety regulations and customer service expectations.
Step 2
Examine the likely impact of Thomas Cook’s plan to reduce their airline emissions (Extract B), in doing so, the social optimum position.
Answer
Thomas Cook's strategy to reduce airline emissions aims at achieving a socially optimal position, where the social costs of emissions are minimized. By investing in more fuel-efficient technologies, Thomas Cook can lower its environmental footprint, potentially leading to better regulatory standing and customer appeal. An externalities diagram illustrating the marginal social cost and marginal private cost can depict how these plans not only benefit Thomas Cook’s image but also align with societal interests in environmental sustainability. This can be illustrated as follows:
- Label the vertical axis as 'Cost' and the horizontal axis as 'Output'.
- Draw two curves: one for Marginal Private Cost (MPC) and another for Marginal Social Cost (MSC), where MSC is above MPC, representing external costs.
- Identify the equilibrium points where output is optimized at the intersection of MSC and Demand.
Step 3
Assess whether Thomas Cook’s failure was caused by the principal-agent problem.
Answer
The principal-agent problem occurs when there is a conflict of interest between a principal (owners/shareholders) and an agent (management). In Thomas Cook’s case, the management’s decisions may not have aligned with the long-term interests of the shareholders. Their focus on short-term profitability led to risky strategies, which ultimately contributed to the collapse. The lack of alignment in goals can validate that the principal-agent problem significantly impacted their operations and decisions.
Step 4
Discuss the proposed government subsidy to prevent Thomas Cook from returning its shut-down point.
Answer
The proposed government subsidy aimed at preventing Thomas Cook's return to its shut-down point highlights the delicate balance between providing support to struggling businesses and ensuring accountability and sustainable operations. While a subsidy could offer immediate relief and protect jobs, it is essential to evaluate the long-term viability of such assistance. This could create moral hazard, where companies may rely on government support rather than innovating or restructuring their operations, potentially leading to repeated issues in the future.
Step 5
Provide the decision by Jet2 in response to Thomas Cook’s failure.
Answer
In response to Thomas Cook's failure, Jet2 expanded its operations and offered support services to the customers left stranded, marking a strategic move to capture the market share abandoned by Thomas Cook. This decision not only reinforced Jet2's brand presence but also positioned them as a reliable alternative in the travel industry amidst the backlash from Thomas Cook’s collapse. By offering flexible packages and reassurances to customers, Jet2 capitalized on the situation to improve customer loyalty and increase bookings.