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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. Refer to Extract A in your answer.
Answer
Diminishing marginal productivity of labor signifies that adding more cabin crew members will yield progressively smaller increases in the overall productivity of the airline. Initially, hiring more cabin crew can reduce flight delays and improve service quality. However, once the crew size surpasses the optimal level required for efficient operations, additional personnel might result in unnecessary costs without proportional increases in output.
As stated in Extract A, airlines, such as United Airlines, focus on managing cabin crew levels to balance efficiency and service quality, highlighting that diminishing returns are crucial in staff management decisions.
Step 2
Examine the likely impact of Thomas Cook’s plan to reduce their airline emissions. Use an appropriate externalities diagram in your answer.
Answer
Thomas Cook's plan to reduce airline emissions addresses the negative externalities associated with air travel, such as increased pollution. The aim is to align the social cost with private costs by reducing the external costs imposed on society.
To illustrate this, we can use an externalities diagram. The demand curve represents the private benefit, while the social cost curve reflects the overall cost to society including the environmental damage. With emission reduction plans, the firm can shift the supply curve leftward, indicating higher costs of compliance but ultimately leading to a more socially optimal output level where private costs equal social costs.
Step 3
Assess whether Thomas Cook’s failure was caused by the principal-agent problem.
Answer
The principal-agent problem arises when there is a conflict of interest between those who own a company (principals) and those who manage it (agents). In Thomas Cook's case, the management's decisions may have prioritized short-term profits over long-term sustainability, misleading shareholders about the true state of the company's finances.
The failure to adequately diversify or respond to market changes suggests that management acted against the interests of the shareholders, thereby supporting the argument that a principal-agent problem was a significant factor in their downfall.
Step 4
Discuss the proposed government subsidy to prevent Thomas Cook from requiring its shut-down point.
Answer
The government subsidy aimed at preventing Thomas Cook's shutdown illustrates a common intervention strategy in cases of market failure. This financial support would help stabilize the firm and potentially save jobs, which can be socially beneficial. However, it raises questions regarding moral hazard, as firms may rely on government assistance rather than enhancing operational efficiency.
The subsidy could lead to short-term relief but might not address the fundamental issues that caused Thomas Cook's financial distress. Therefore, while it may prevent immediate closure, it does not guarantee long-term viability.
Step 5
Critically evaluate the decisions made by Jet2 in response to Thomas Cook’s failure.
Answer
Jet2's response to Thomas Cook’s failure involved seizing market opportunities created by the latter's collapse. By expanding their offerings and reassuring consumers of stability, Jet2 aimed to position itself favorably amidst uncertainty.
However, this strategy has its risks; rapid expansion can strain resources and can lead to service quality decline. Additionally, relying on competitors’ failures could be detrimental if the market dynamics change. A balanced approach that emphasizes sustainable growth rather than opportunistic expansion would better serve Jet2 in the long run.