Productivity

Chapter Two-Text Book

 Productivity

Productivity: A measure of the effective use of resources, usually expressed as the

ratio of output (goods or services) to input (labor, materials, energy, and other
resources).

  𝑶𝒖𝒕𝒑𝒖𝒕
𝑷𝒓𝒐𝒅𝒖𝒄𝒕𝒊𝒗𝒊𝒕𝒚=
𝑰𝒏𝒑𝒖𝒕

Productivity measures can be based on:

 a single input (partial productivity)

 More than one input (multifactor productivity)
 All inputs (total or all-factor productivity)
 Measures of Productivity

 Single-factor productivity:

Multi-factor productivity:

All-factor productivity:
 Single-factor productivity

 Single-factor productivity:

If we produce only one product, the numerator can be either the total units of
the product or the total $ value of the product. If we produce several products,
the numerator is the total $ value of all products.

The denominator can be the units of input or the total $ value of input.
 Example: Single Factor Productivity

 10,000 units produced

 Sold for $10/unit Compute labor productivity
 500 labor hours required
 Labor rate: $9/hr

 Labor Productivity (LP1)

Labor Productivity (LP2)=

Labor Productivity (LP3)=

Labor Productivity (LP4)10,000 units

 Some Single-factor Productivity

Labor Productivity:
 Quantity (or value) of output / labor hrs
 Quantity (or value) of output / shift

Machine Productivity:
 Quantity (or value) of output / machine hrs

Energy Productivity:
 Quantity (or value of output) / kwh

Capital Productivity
 Quantity (or value) of output / value of input
 All-factor productivity
 All-factor productivity:

If we produce only one product, the numerator can be either the total units of
product or total $ value of the product.

If we produce several products, the numerator is the total $ value of all

products.
(Usually, the numerator is the total $ value of all outputs)

The denominator is total $ value of all inputs.

 Example: All-factor Productivity
 10,000 units produced
 Sold for $10/unit
 Compute all-factor productivity
500 labor hours required
 Labor rate: $9/hr
 Cost of raw material: $30,000
 Overhead: $15,500
 All-factor Productivity (AFP) =

 Productivity Growth=
 Exercise: Productivity
1. A company that makes shopping carts for supermarkets recently purchased new equipment,
which reduced the labor content needed to produce the carts. Information concerning the old
system (before adding the new equipment) and the new system (after adding the new
machines) includes:
Old System New System
Output/hr 80 84
Workers 5 4
Wage $/hr 10 10
Machine $/hr 40 50

a) Compute labor productivity for both the Old System and the New System (in every possible
way).
b) Compute AFP productivity for both the Old System and the New System.
c) Suppose production with old equipment was 30 units of cart A at a price of $100 per cart, and
50 units of cart B at a price of $120. Also suppose that production with new equipment is 50
units of cart A, at a price of $100 per cart, and 34 units of cart B at a price of $120. Compare all-
factor productivity for the old and the new systems.
Exercise: Productivity
What are the factors that affect
productivity?

Training Methods

Technology Management