The production operations of any business combine two factor inputs:
See Also
Capital Intensive: Definition, Examples, and Measurement4 Factors of Production Explained With ExamplesCapital Intensive ProductionWhat are the advantages of capital-intensive production? | TutorChase- Labour – i.e. management, employees (full-time, part-time, temporary etc)
- Capital – i.e. plant & machinery, IT systems, buildings, vehicles, offices
The relatively importance of labour and capital to a specific business can be described broadly in terms of their "intensity" (or to put it another way, significance).
- Labour-intensive production relies mainly on labour
- Capital-intensive production relies mainly on capital
Sounds simple! Some examples will help reinforce the point:
Labour intensive
- Food processing (e.g. ready meals)
- Hotels & restaurants
- Fruit farming / picking
- Hairdressing & other personal services
- Coal mining
Capital intensive
- Oil extraction & refining
- Car manufacturing
- Web hosting
- Intensive arable farming
- Transport (airports, railways etc)
The main features of each category can also be summarised as follows:
Labour intensive operations
- Labour costs higher than capital costs
- Costs are mainly variable in nature = lower breakeven output
- Firms benefit from access to sources of low-cost labour
Capital intensive operations
- Capital costs higher than labour costs
- Costs are mainly fixed in nature = higher breakeven output
- Firms benefit from access to low-cost, long-term financing
