Home » Learning Zone » The Nature of Production - Productivity
Many companies are interested in productivity. Let's get one thing clear at the start however. 'Productivity' and 'production' are not the same thing.
Production refers to the total amount of a good produced (the output).
Productivity refers to the output per worker per period of time. Productivity can also refer to the output per machine per period of time or the output per unit of land.
Productivity is important to a business because it affects their costs and the amount of profit they make on each item sold.
Let's look at an example to illustrate this.
Using the previous example of the mugs, assume that each worker in the factory gets paid a wage of £200 per week. Worker X produces 500 mugs per week whilst Worker Y only produces 400 per week.
What is the cost per unit to the firm in each case?
Now think about what the firm could do to compete against its rivals. Assume that the business has three rival mug makers all of whom currently charge 75p per mug.
What is the profit margin per mug?
Now assume that the business develops new ways of working, which means that the productivity per worker is increased. What will happen to the cost per unit?
Once you have got the answer to the question above, what will happen to the profit margin for the business?
What strategy could the business now adopt as a result of increasing the level of its productivity?
Look at an article from Manufacturing Talk, Sunderland plant set European productivity record. You do not need to read all the article but try to pick out the most important part of it.
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