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Economics: Production Versus Productivity Essay

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Updated: May 3rd, 2021

Production denotes the degree to which products are generated while productivity represents the process of manufacturing goods efficiently for their utilization or sale. Production is usually confused with productivity though there is a great difference between them in that the former points to the volume of output while the latter portrays the output realized from the resources used by the organization. In the production process, the rate of productivity establishes the profitability, effectiveness, and performance of the organization. A high level of productivity of an organization translates to a great earning ability (Martinez, 2016).

Productivity is enhanced by realizing the highest possible output while consuming minimal factors of production. It tends to determine the overall production of organizations by ascertaining how effectively the company uses its resources in the manufacturing process with the least possible wastage. Productivity may be boosted by effective management of the factors of production and improvement of the process and expertise.

Factors such as competition have a great influence on productivity. This is because aggressive competition leads to increased productivity, which then offers improved value to the consumers resulting in a greater market share (Mayer, Melitz, & Ottaviano, 2014).

On the same note, the cost of production is inversely related to productivity. The cost of production signifies the expenditure in terms of materials and labor that an organization incurs during the manufacturing of the goods that will be sold to the customers. It has been established that a low cost of production results in a high profit; that is, an increased amount is left when the expenses are deducted from the sales. Nonetheless, a low production cost does not essentially mean that an organization will have increased profit. The company may have overly high fixed costs, for instance, rent, or may have had a reduction in the cost of production at a point where it is producing inferior products that most customers will not like.

Production function associates factors of production with the physical output of the manufacturing process. It acts as a mathematical function that establishes the highest level of output that may be realized from a given amount of inputs, mainly labor and capital (Ackerberg, Caves, & Frazer, 2015). In this aspect, the production function determines a boundary or limit showing the extent of output that may be realized from a given set of inputs. Organizations employ the production function to determine the output that they ought to produce concerning the price of commodities and the inputs that are required considering the costs of labor and capital. When companies are assessing the number of products needed, they often find that a high rate of production results in increased marginal costs.

Organizational strategies geared towards the realization of competitive benefit and consumer satisfaction have human resource significance, and approaches such as downsizing, training, and pay-for-performance ought to be particularly directed at improving profitability. Nevertheless, the tactical deliberations that ought to accompany the application of such policies are at times disregarded. A wide pool of studies affirms that the aim of downsizing ought to seek increased productivity for each worker.

This may be realized by appropriate decision making, preparation and execution, and consequent assessment of the downsizing endeavor (Goesaert, Heinz, & Vanormelingen, 2015). In an organization, downsizing may be triggered by poor economic situations, which necessitates companies to lay off some employees to reduce costs and sustain or reaching a given level of profitability.

References

Ackerberg, D. A., Caves, K., & Frazer, G. (2015). Identification properties of recent production function estimators. Econometrica, 83(6), 2411-2451.

Goesaert, T., Heinz, M., & Vanormelingen, S. (2015). Downsizing and firm performance: Evidence from German firm data. Industrial and Corporate Change, 24(6), 1443-1472.

Martinez, P. (2016). Production versus productivity. Journal of Investigative Genomics, 3(1), 42-46.

Mayer, T., Melitz, M. J., & Ottaviano, G. I. (2014). Market size, competition, and the product mix of exporters. American Economic Review, 104(2), 495-536.

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