Section 2 Obj- 2.1 Production & productivity Flashcards
Production
The conversion of raw materials into a saleable g/s in order to generate profit for the owners. In other words, it means the creation of something from basic inputs.
Eg production of bread
What is productivity
The rate at which raw materials are converted into a saleable g/s. Therefore it is the measure of output per unit of input.
1) Labour productivity is output per unit of labour input.
Eg. # of refrigerators made per person employed
2) Productivity of Land is a measure of output per unit of land used.
3) Productivity of capital is a measure of output per unit of capital
Law of productivity
Quantity of output
______________________
Quantity of labour/capital/land used
What are the other differences between production and productivity
-Production/output increases continuously when more workers are hired.
-Productivity increases, reaches a maximum and then falls when too many workers are hired according to the law of diminishing returns
- Production is measured by the level of output
- Productivity can be measured by average output or marginal output
Average output (average product)
Refers to output per worker
AP(L) = Total ouput
——————–
QL
Average product of labour
Total output
________________
# employees
Marginal product (marginal output)
The change in total output from hiring one more worker
ML = change in total output
———————————–
change in quantity L
Total product
refers to the total output produced by a firm from the employment of a given amount of labour
Marginal Product
refers to the increase in output as one more unit of factors of production (fop) is hired
Average Product
refers to the amount produced per unit of labour
Look at table for mpl
please
What is the law of diminishing return
The law states that if one variable FOP labour is increased against faced factors like capital with other things being constant, then productivity will eventually fall when the ideal combination of variable and fixed factors are supassed
Give an example of the law of diminishing return
This law suggests that if there are too many chefs in the kitchen of a restaurant, they will overwork the kitchen equipment (capital goods) and the productivity if the chefs will fall
As more workers are employed…
Each worker has less capital to work with. As a result, the productivity of the additional unit of labour fails and this leads to a decline in marginal product or diminishing returns
Improvements in technology tend to…
Delay the occurrence of diminishing returns but it cannot eliminate it entirely. In general, in the short run, all may experience diminishing returns because each additional unit of the variable factor has less and less of the fixed factors to work with
