Production – Productivity & Wealth Creation

Definition

Productivity: A measure of the efficiency of production. It is the amount of output that can be

produced from a given amount of resources

Labor productivity: the amount of goods and services that a worker produces in a given amount of

time

Production Possibility Frontier: A graph that compares the production rates of two commodities

that use the same fixed total of the factors of production.

Profit = Revenue – Cost (ß Productivity (↑ CELL; FOP) ↓ Cost)

Productivity

Labor productivity = Output ÷ of workers
- g. Firm A: 10 units of labor & 20 units of output

Firm B: 20 units of labor & 60 units of output

Ways to increase productivity may mean:
- Using same number of Factors of Production to produce more output
- Using less Factors of Production to produce same amount of output.
What is increased productivity = lower business cost
Increased productivity means greater wealth for owners of firms and the economy (in general) à PPF shift outwards (economic growth)

Increased use of fertilizers – Fertilizers allow previously barren land to produce crops, and

fertile lands to improve higher yields

Improved drainage – Reduces soil erosion and assists in the reduction of phosphorus in

It allows crops such as hay, corn and soybeans to produce higher yields.

Improved irrigation – In dry areas, improved irrigation will allow plants to receive more
water and produce a higher yield.
Increased use of machinery – Machinery such as tractors help take in the yields much more

quickly.

Introduced genetically-modified high-yield crops – Genetically-modified crops produce

higher yield as they can be altered to fight against pests, herbicides, cold, disease or drought.

Build multi-functioned buildings (e.g. skyscrapers) – By building multi-functioned buildings,

land can be allocated more efficiently as

buildings such as skyscrapers can

accommodate a wide range of business

activities

Implement division of labor – Division of labor allows production to be more efficient.

Increase use of machinery (to aid tasks) – Machinery allows the increase of production as

well as the quality of the finished product to be

better.

Specialization – There is a higher output. Total output of goods and services is raised and

quality can be improved. A higher output at lower costs means more wants

and needs might be satisfied with a given amount of scarce resources.

Skill training – Skills training increase productivity. In addition to learning how to complete

new tasks and take on more responsibility, employees can learn advanced

techniques to help those complete everyday tasks more efficiently. Also, it

improves job satisfaction of the employee. Investing time and money in

employees’ skills make them feel valued and appreciated, and it challenges

those to learn more and get more involved in their jobs. Higher job

satisfaction ultimately results in reduced turnover and higher productivity.

Motivate workers with financial incentives (pay raises, profit sharing), increase job satisfaction (better working environment)