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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. Refer to Extract A in your answer.
Answer
Diminishing marginal productivity occurs when adding more of a variable input (in this case, cabin crew) while keeping other inputs constant leads to a decrease in the additional output generated. This could mean that hiring more cabin crew might not proportionately increase the effectiveness of service.
If cabin crew staffing levels become excessive, each additional member may not significantly enhance passenger experience or safety. This could drive an increase in operational costs without proportional revenue growth, discouraging further hiring and leading to potential layoffs.
Step 2
Examine the likely impact of Thomas Cook’s plan to reduce their airline emissions (Extract B, line 6) on the social optimum position. Use an appropriate externalities diagram in your answer.
Answer
Thomas Cook’s plan fits within the framework of externalities, particularly negative externalities from carbon emissions. By reducing emissions, Thomas Cook aims to mitigate its harmful impact on the environment.
The social optimum position is achieved when the marginal social cost (MSC) of an activity equals the marginal social benefit (MSB). In this case, reducing emissions would lower the MSC, as environmental damage decreases. A diagram could illustrate this by showing the MSC curve shifting leftward, indicating a new social optimum where the costs of emissions are accounted for.
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 there is a conflict of interest between a principal (shareholders) and an agent (management). In the case of Thomas Cook, management decisions may not have aligned with shareholder interests, especially given their focus on short-term profitability.
For instance, the disastrous merger and subsequent financial losses suggest a disconnect between management strategies and the expectations of stakeholders. Thus, it can be argued that the principal-agent problem played a significant role in Thomas Cook’s failure.
Step 4
With reference to Extract C, discuss the proposed government subsidy to prevent Thomas Cook from facing its shut-down point.
Answer
The proposed government subsidy highlights a interventionist approach to help struggling firms. By providing financial support, the government seeks to stabilize employment and prevent a complete shutdown of the airline.
However, this raises questions about moral hazard, where companies might engage in riskier behavior, assuming government support will always be available. While subsidies can provide immediate relief, long-term viability requires structural changes within the organization and industry.
Step 5
In the context of industry regulation, discuss the decision by Jet2 to increase its prices.
Answer
Jet2’s decision to increase prices may stem from various regulatory pressures and the need to maintain profitability in a competitive market. Price increases can reflect rising operational costs, such as fuel or staffing, which are passed on to consumers.
From a regulatory perspective, such decisions need careful management to avoid alienating customers and losing market share. However, it can also be seen as a sign of a healthy market where firms adjust prices to ensure sustainability and compliance with regulations.