Production & Productivity

Key Terms
Production: The process that converts factor inputs into output of goods and services.

Productivity: A measure of efficiency, measuring the ratio of inputs to outputs; the most common measure is labour productivity, which is output per worker.

Productive efficiency: When a firm operates at minimum average total cost, producing the maximum possible output from inputs into the production process.

Specialisation: The production of a limited range of goods by an individual factor of production, firm or country in co-operation with others.

Divisions of labour: Breaking the production process down into a sequence of tasks, with workers assigned to particular tasks.

Theory

Benefits of Division of Labour

1) Time Saving

2) Increased aptitude - More time spent on one task allows task to be done more expertly.

3) Workers do what they are best at.

4) Capital Equipment - As tasks are subdivided it becomes worthwhile to use machinery.


Measuring Productivity

Productivity = Ouput / Input

Labour Productivity = Total output per time period / Number of units of labour

Advantages Of Higher Productivity
1) Lower Average Costs

  • Lower costs could also be passed onto to consumers in the form of lower prices.
  • It is more likely however that lower costs would be passed onto shareholders in the form of dividends.
  • Additionally lower costs also result in higher profits, these profits could be used for future investment


    • 2) Higher real wages

  • Lower costs may be passes on to workers in the form of higher wages
  • However in the past decade firms have returned more to capital than to labour


    • 3) Growth of the economy

    Increase in productivity, increases in productive capacity of the economy creating economic growth.

    This will create:

  • New jobs
  • Greater business confidence
  • Accelerator effect









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