Production (lesson 3)

E Coetzee
Way of measuring performance:(efficiency)
• Production- process of • Productivity- ratio of input used to
change/converting raw materials produce output
into finished or semi- finished • - output (total goods & services)
goods. produced by an employee in a given
• Combines factors of production period
(inputs) to produce
goods/services(output)
 Production function- tells us what quantity
of a product can be produced with varying
Q of labour
• Qx= f(L,K)
• Where Qx= output of product X over a period of
time
• f = functional relationship
• L= Quantity of labour
• K= Quantity of capital
 Total product(TP)

• Total output produced over a period of time as

more workers are employed
• TP= AP x L (number of workers)
• This relationship between maximum output &
quantity of input known as production function
 Average product(AP)

• Total product divided by number of

workers- this represents the quantity
produced by one worker-it measures the
productivity of workers
• AP=TP/L
 Marginal Product(MP)

• Represents extra output obtained from

employment of one extra worker
• MP=change TP/change L
capital labour TP AP MP
5 0 0 0 0
5 1 5 5 5
5 2 24 12 19
5 3 57 19 33
5 4 100 25 43
5 5 150 30 50
5 6 180 30 30
5 7 189 27 9
5 8 176 22 -13
5 9 153 17 -23
 Activity
capital labour Total product(TP) Average Marginal
product(AP) product(MP)
0 0
2
2 1 16
2 2 44
2 3 78
2 4 113
2 5 145
2 6 171
2 7 190
• A) Which time period does the data refer
to?
• B) With the employment of which worker
will diminishing marginal returns set in?
 Conclusion
• Please make sure that you know how to do the calculations, I will give the
answers of the Activity in Lesson 4
• The law of Diminishing marginal return will be explained in the lessons to
come.
Thought of the day