Production – Productivity & Wealth Creation
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
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)
- 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)
How to improve productivity of land
- 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
- 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
How to improve productivity of labour
- 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
- 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)