Begino, Vanessa Jamila D.

BMI-A1

GRADED ACTIVITY NO. 3 (Seatwork No. 2)

Final Period
Topic: Production Analysis and Compensation Policy

This is 50 points graded activity. Do the following:

1. Define in simple terms the following: (20 pts.)
a. Production
b. Production function
c. Production analysis
d. Compensation policy
2. Explain labor as a factor of production. (10 pts.)
3. For purposes of maximizing returns or profits, explain why managers should
know and understand the “Law of Diminishing Returns”. (10 pts.)
4. Briefly explain the relationship between company’s good compensation policy
and employees’ productivity. (10 pts.)

ANSWERS:

1. A. Production - It is defined as the process of transforming input into output.

Inputs include land, labor, and capital; outputs include finished goods and
services. Firms produce to maximize profit, which is the difference between cost
and revenue.

b. Production function - A formula that expresses the relationship between the

amount of input production factors (labor, capital, etc.) and the amount of output
obtained.

c. Production analysis - Visually represent production performance and quantify

production losses and associated costs.

d. Compensation Policy - combination of philosophies and practices that an

organization uses in determining employee compensation, bonuses, and
benefits. Each company has its own compensation policy, but certain industries
may have similar or equivalent approaches to compensation and benefits.
2. Labor is the effort people put into producing goods and services. Labor resources
include jobs for waiters who bring food to local restaurants and engineers who
designed buses to get to school.

3. Managers need to understand the principle of declining profitability because,

counter-intuitively, headcount growth can be a disruptor to inventory
management among other things. This article explains what diminishing returns
is and how it affects your business decisions.

4. Compensation and productivity start with making your employees feel valued.
This increases motivation and loyalty. Employees are not only motivated to do
good work, but the longer they stay with the company, the more knowledgeable
and efficient they become. All of this leads to increased productivity. Employers
must offer their employees compensation packages that enable them to attract,
retain and motivate them. Compensation has been shown to have a direct impact
on employee productivity. However, this can be achieved if the reward system is
transparent and the reward or compensation matches the beneficiary's
expectations.