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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 of labor refers to a situation where adding an additional unit of labor results in a smaller increase in output than previous units. In the case of cabin crew staffing levels, if a company like United Airlines increases its workforce beyond an optimal point, the efficiency per crew member may decline. This could lead to increased costs without a corresponding increase in performance or service quality. As seen in Extract A, efficient cabin crew operations are essential for enhancing productivity. If staffing exceeds the effective threshold, resources may be wasted, and service levels could diminish rather than improve.
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 initiative to reduce airline emissions can positively influence the social optimum position. The social optimum occurs when the marginal social cost equals the marginal social benefit. By implementing measures to lower carbon emissions, the airline would likely reduce the negative externalities associated with pollution, aligning itself closer to the social optimum. This can be illustrated with a diagram where the Marginal Social Cost (MSC) curve shifts leftward, reflecting reduced emissions and costs associated with environmental damage. Consequently, this leads to an increase in overall welfare by aligning private costs with social costs.
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 the party hiring the agents (principals) and those making decisions on their behalf (agents). In the case of Thomas Cook, the management's decisions, such as risky mergers and failure to adapt to market changes, may reflect a divergence from shareholder welfare. As described in Extract C, management faced difficulties that ultimately led to the company's collapse, suggesting that the operational strategies employed by executives did not align with the interests of the firm's stakeholders. Therefore, the principal-agent problem likely contributed significantly to the company's failure.
Step 4
With reference to Extract C, discuss the proposed government subsidy to prevent Thomas Cook from trading post its shut-down point.
Answer
The proposed government subsidy of £150 million to Thomas Cook, as discussed in Extract C, aimed to mitigate the financial collapse and maintain operational capabilities. Such subsidies can be justified as they potentially protect jobs and support the wider tourism industry. However, they also raise concerns about moral hazard, where companies may take excessive risks assuming that they will receive government support in times of distress. Thus, while the subsidy could offer short-term relief, it is essential to consider its long-term implications on market discipline and responsible corporate governance.
Step 5
Finally, explain the implications produced, the decision by Jet2 to increase capacity on cabin crew.
Answer
Jet2's decision to increase cabin crew capacity can reflect several strategic implications. First, it suggests a confidence in projected passenger demand, indicating that Jet2 is poised for growth in contrast to competitors like Thomas Cook. Additionally, this move can enhance service quality and operational efficiency, as larger crews can better accommodate fluctuating flight schedules and passenger numbers. However, it also incurs higher payroll costs and necessitates effective training and management strategies to maintain optimal crew performance and operational readiness.