Productivity Flashcards
Define productivity
Productivity is a measurement of efficiency with which a business turns production inputs into outputs.
How do you measure labour productivity
Labour productivity = Output (per period)/Number of employees (per period)
Define capital productivity
Also there is capital productivity which measures a businesses productivity by the productivity of its capital (assets e.g machines). This is increases as firms are becoming more and more capital intensive.
How do you work out capital productivity
To work capital productivity it = Output/Capital employed
Why is productivity important
Increases economies of scale, Increased competitiveness, lower costs for consumers, lower unit costs, performance bonuses for workers and Higher wages
How do you improve productivity
You can improve productivity by Improving workforce motivation (higher wages, provide workers shares, employee empowerment), Have better capital goods, relocation, Improve working conditions/ layout of factory/workspace and reducing absenteeism.
What is capital utilisation
The use that a business makes of its resources and is the percentage of total capacity that is being achieved in a period
How do you calculate capital utilisation
Capacity utilisation is measured by doing the equation – Output/Capacityx100
24 boxes maximum in the lorry and only 22 is used in the lorry then the equation would be – 22/24x100
What does full capacity
Full capacity means that all employed factors of production are being used to their optimum level of efficiency, producing maximum level of output.
Most of the time businesses are producing under full capacity meaning that the have the capacity to produce greater levels of output than they already are.
How do you calculate spare capacity
for example using the lorry equation doing 2/24x100 instead so using the difference between to calculate spare capacity.
Disadvantages of having spare capacity
Lack of return on investment capital – producers goods will continue to depreciate, even though they are not used to full capacity.
Demotivation of staff- bonuses limited, overtime not available, threat of redundancy
Reduced profits – Limit capital for investment, research and development and a reduction in long term competitiveness
Increased costs for businesses forced to make workers redundant and having to pay redundancy pay, time spent on reorganisation.
Disadvantages of running at full capacity
Lack of flexibility – if an increase in demand (stuffed)
Possible fall in quality = having to work fast goods rushed not done as well
Pressure on staff – working hard all the time = stress
More breakdowns on capital goods
