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Productivity is one of the primary indicators of an organization’s performance, a measure of efficiency. Generally, productivity is the ratio between output and input, while peculiarities of measurement will be different depending on the type of the company or organization under analysis. In fact, productivity measurement is a driving force in the development of a company. This paper presents experience in measuring productivity as well as the concepts of the total, average, and marginal product and the relation of costs and production.
Experience in Measuring Productivity
The company I was working for was concerned about productivity as a key source of growth and competitiveness. Moreover, cost efficiency was considered to be a significant factor. The system for measuring productivity was developed with regard to the company goals and business sector peculiarities. This system comprised productivity measurement on both aggregate and individual bases. Thus, total and partial productivity were assessed.
Total productivity was calculated by comparing the output of the company and all inputs such as capital, labor, material, and energy. Still, more attention was given to measuring partial productivity. It included the indices of labor, material, machine, and capital productivity and allowed assessing every factor separately from the others thus revealing planning drawbacks. Finally, measuring productivity was followed by change interventions. In case there were problems with labor productivity, additional training for managers and other staff members was provided. The same way, in case a reduction in machine productivity was revealed, the company invested in newer technologies to improve this indicator.
Total, Average, and Marginal Product
The total product (also called total physical product) is the maximum output that can be produced involving both variable resource and fixed resource (Boyes & Melvin, 2016). Average product implies output calculated per one unit of resource. Finally, the marginal product can be defined as “the additional quantity that is produced when one additional unit of a resource is used in combination with the same quantities of all other resources” (Boyes & Melvin, 2016, p. 174). In fact, marginal product is the alteration of total output produced by adding one unit of a variable input (Tucker, 2017).
Relation of Production and Cost
Production and its cost are the interrelated concepts. There are some important categories of costs such as fixed, variable, and total, average, and marginal costs (Colander, 2017). Fixed costs are those that cannot be changed in the production process. Variable costs usually change depending on output. Total cost is the sum of fixed and variable costs. Total cost is frequently used for productivity measurement.
Average cost is calculated by dividing the total cost by the quantity of the produced goods thus defining the cost of a single item. Average cost can also be fixed, variable, and total. Finally, marginal cost is the most important indicator. It is “the increase (decrease) in total cost from increasing (decreasing) the level of output by 1 unit” (Colander, 2017, p. 232). It allows evaluating the most efficient volume of production at minimum costs.
On the whole, production and its costs are closely related to productivity which, in its turn, determines the performance of an organization. Productivity measuring is a necessary aspect of any organization since it allows evaluating its efficiency and revealing the existing flaws in planning as well as cost and resource distribution. Therefore, organizations should apply productivity measuring to improve their performance and stay competitive.
Boyes, W., & Melvin, M. (2016). Microeconomics (10th ed.). Boston. MA: Cengage Learning.
Colander, D. C. (2017). Microeconomics (10th ed.). New York, NY: McGraw-Hill Education.
Tucker, I. B. (2017). Microeconomics for today (9th ed.). Boston. MA: Cengage Learning.