Labour / Capital Intensive

Labour intensive - this is where the proportion of labour used in producing the product is relatively high. Labour will usually be used instead of capital.

Capital intensive - this is where techniques are used to produce that use relatively more capital than labour. Many industries are now like this including the car and steel industries.

The technique that a company uses depends on several things:

• the size of the company - small companies are often not in a position to afford expensive capital equipment. Even if they could they are often not able to use it enough to justify the cost.
• the cost of the factors of production - even though a machine may be available to do the job, it may not be worthwhile if the amount of labour required costs less. Firms therefore look carefully at the cost of labour and capital before deciding how much to use.
• the product - some products lend themselves better to being produced by capital than others. Mass-produced everyday items are far more likely to be produced in a capital-intensive way, whereas services and products with a more individual slant are more likely to be produced using a large proportion of labour.

Why not now try the worksheet on Cameron Balloons production methods?