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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
Explain the likely impact of diminishing marginal productivity of labour on cabin crew staffing levels. Refer to Extract A in your answer. Examine the likely impact... show full transcript
Worked Solution & Example Answer: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 additional output gained from each additional unit of input, in this case, cabin crew labor. As more cabin crew are employed, the added productivity from each additional crew member tends to decline. This means that while initially increasing manpower can significantly enhance service quality and flight efficiency, after a certain point, employing more cabin crew leads to increasingly smaller improvements in productivity.
In the context of staffing levels, this could lead airlines to carefully assess the ideal number of cabin crew necessary to meet service standards without overspending on labor costs. Therefore, if the marginal productivity is deemed to be diminishing, airlines may choose to optimize existing staff rather than hire more, which can help maintain cost efficiency while still delivering adequate service levels.
Step 2
Examine the likely impact of Thomas Cook's plan to reduce their airline emissions.
Answer
Thomas Cook's plan to reduce airline emissions addresses externalities associated with environmental harm. By implementing more efficient practices and technology, the airline aims to minimize its negative impact on the environment.
When illustrating this with an externalities diagram, we represent the marginal social cost (MSC) of pollution and the marginal private cost (MPC) of airline operations. If Thomas Cook successfully reduces emissions, it shifts the MPC curve leftward, aligning more closely with the MSC. This situation represents the social optimum where the costs associated with environmental damage are reduced, potentially leading to lower fuel costs, improved public perception, and regulatory compliance.
However, this transition may involve initial financial outlays that could affect short-term profitability. Long-term impacts should see improved sustainability and possibly enhanced competitiveness in the market.
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 the parties involved, where the agents (executives) may not act in the best interest of the principals (shareholders). In Thomas Cook's case, the directors' decisions leading to risky expansions and ultimately the company's collapse reflect this issue.
With management potentially prioritizing personal incentives or short-term gains over sustainable growth and stakeholder interests, the failure can indeed be attributed to a lack of alignment between the directors’ actions and the shareholders’ best interests. This disconnect may have contributed significantly to the operational challenges that led to the company's insolvency.
Step 4
Discuss the proposed government subsidy to prevent Thomas Cook from creating its shut-down point.
Answer
The government proposed a subsidy to assist Thomas Cook, reflecting an intervention in the market to prevent a complete shutdown. Subsidies can help buffer a business against temporary financial distress, allowing it to restructure or pivot strategically rather than liquidate.
In theory, this subsidy could provide the necessary funds to stabilize operations, retain jobs, and maintain service for consumers. However, such fiscal support comes with debates surrounding moral hazard, where a company might rely on government assistance instead of making necessary internal changes. If the subsidy is mismanaged or if it fails to lead to effective reform, it might not yield the desired long-term viability for Thomas Cook.
Step 5
Evaluate the likely impact of the decision by Jet2 to increase prices.
Answer
Jet2's decision to increase prices can have multiple impacts on both consumers and the market. From a consumer standpoint, higher prices may deter price-sensitive travelers, causing a potential drop in sales volumes. Nevertheless, it could attract a different segment of customers who perceive the price increase as a reflection of enhanced quality and service.
Market-wide, Jet2's price hike could lead to increased competition among airlines. Competitors may also raise their prices in response, leading to an overall elevation in market pricing. Alternatively, if Jet2 manages the price increase well, it could result in higher revenue per flight, enhancing profitability and allowing for re-investment into better services or practices in line with consumer expected value. Thus, the impact of this price increase would largely depend on the price elasticity of demand within the airline sector and consumer reactions to the perceived value of the service provided.