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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 occurs when adding an additional unit of input results in smaller increases in output. In the context of cabin crew staffing, this means that as more cabin crew are hired, each additional crew member contributes less to overall efficiency and service quality.
For example, initially, increasing the number of cabin crew on a flight may improve service speed and passenger satisfaction. However, beyond a certain point, adding more crew can lead to overcrowding in the aisles, inefficiencies in communication, and decreased morale. Therefore, airlines must balance staffing levels to ensure optimal service without incurring unnecessary costs.
Step 2
Examine the likely impact of Thomas Cook’s plan to reduce their airline emissions on the social optimum position.
Answer
Reducing airline emissions can potentially correct a market failure associated with negative externalities, where the social costs of pollution are not reflected in the ticket prices. The social optimum position occurs where the marginal social cost equals the marginal social benefit.
By implementing greener practices, Thomas Cook may reduce emissions and align their operations with social welfare considerations. To illustrate this, an externalities diagram can showcase the shift in the supply curve to reflect lower external costs, resulting in lower prices and increased quantity at the social optimum point.
This plan could enhance their public image and attract environmentally conscious consumers, thereby increasing demand.
Step 3
With reference to Extract C, assess whether Thomas Cook’s failure was caused by the principal-agent problem.
Answer
The principal-agent problem arises when the interests of the agent diverge from those of the principal. In Thomas Cook’s case, management decisions may not have aligned with the shareholders' best interests.
For instance, previous mergers and risky business strategies that led to high debts can be attributed to management’s poor strategic choices. This misalignment can result in diminishing shareholder value and ultimately, business failure. Evidence from the extracts suggests that the company's leadership focused on short-term gains rather than sustainable practices, confirming that issues like risk management and strategic alignment were central to their failure.
Step 4
With reference to Extract C, discuss the proposed government subsidy to prevent Thomas Cook from entering its shut-down point.
Answer
Government subsidies can play a crucial role in stabilizing struggling businesses like Thomas Cook. By providing financial support, the government could help the company avoid entering a shut-down point where it can no longer operate profitably.
Such a subsidy might improve liquidity, allowing for necessary investments in marketing, restructuring, or staff retention. However, it also raises ethical questions about using taxpayer money to bail out a struggling company, especially when it may be perceived as mismanagement. The controversy surrounding this decision reflects broader debates about economic responsibility and the correct use of public funds.
Step 5
Finally, explain how decisions, provided the decision by Jet2 to increase their holiday package prices, could affect the holiday market.
Answer
When Jet2 increases their holiday package prices, this decision can have several ripple effects in the holiday market.
Higher prices may deter price-sensitive consumers, leading to a decrease in demand for Jet2's offerings. Competitors might capitalize on this by keeping their prices stable or offering promotions to attract former Jet2 customers.
This shift in consumer behavior can lead to a price war, impacting overall market pricing strategies. Additionally, Jet2's decision may signal increased demand for luxury experiences, potentially raising the industry average prices. Ultimately, the market dynamics will depend on the elasticity of demand and how competitors respond.