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A construction company needs land for building houses - Leaving Cert Economics - Question 3 (a) - 2008
Question 3 (a)
A construction company needs land for building houses. It must also purchase raw materials, pay wages to employees and make loan repayments on finance obtained to ... show full transcript
Worked Solution & Example Answer:A construction company needs land for building houses - Leaving Cert Economics - Question 3 (a) - 2008
Step 1
Explain land as a factor of production.
Answer
Land, in the context of economics, refers to any resource that is derived from nature and is utilized in the production of goods and services. It encompasses not only the physical ground for construction but also natural resources such as forests, rivers, and minerals.
It is crucial to note that land is fixed in supply, meaning that its quantity cannot be increased, irrespective of demand. This characteristic implies no cost of production to society as a whole; rather, it is the value assigned to land that varies based on its location and use.
Step 2
Define the terms fixed costs and variable costs.
Answer
Fixed costs are expenses that do not change regardless of the level of output produced by a business. These costs remain constant, whether production increases or decreases, and include items such as rent, salaries of permanent staff, and the depreciation of machinery.
Variable costs, on the other hand, fluctuate directly with the level of production. As output increases, variable costs also rise and include expenses like raw materials, utilities, and hourly wages.
Step 3
State whether each of the three costs underlined above is an example of fixed costs or variable costs.
Answer
- Loan repayment: Fixed cost
- Raw materials: Variable cost
- Wages: Variable cost
In summary, loan repayments are considered fixed costs as they do not vary with production levels, whereas raw materials and wages fluctuate and hence are classified as variable costs.