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 pieces 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 pieces of input or the total $ value of input.
 Example: Single Factor Productivity

 10,000 pieces produced

 Sold for $10/piece Compute labor productivity (in every possible way)
 500 labor hours required
 Labor rate: $9/hr

 Labor Productivity (LP1)

Labor Productivity (LP2)=

Labor Productivity (LP3)=

Labor Productivity (LP4) 10,000 pieces

 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 pieces 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 pieces produced
 Sold for $10/piece
 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 pieces of cart A at a price of $100 per cart, and
50 pieces of cart B at a price of $120. Also suppose that production with new equipment is 50
pieces of cart A, at a price of $100 per cart, and 34 pieces 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
 Exercise: Productivity
A cable manufacturing company produces two types of cables from same raw materials;
wire and plastic resins. To produce one meter first type cable 100 gm resin and 0.3 kg
wire are required. Whereas, 150 gm resin and 0.4 kg wire are required to produce one
meter of the second type cable. Cost of resin and wire is Tk.80/Kg and Tk.100/Kg
respectively. The company can produce 60000 meter first type and 40000 meter second
type cable per month by using 200 labors. Average wage of each labor is Tk.600 per day,
and overhead cost is 3 million taka per month. To set up the machine 60 million taka is
invested on it. Life of the machine is 5 years. Price of the first and second type cable is
Tk.300/meter and Tk.350/meter respectively. Consider 25 working days make a month.

Compute labor, material, machine, overhead and multi factor productivity for both
first and second type cable and interpret the result.

Compute Labor productivity for first type cable (in every possible way) and All factor
productivity for the first type Cable and interpret the result. (In daily basis)