Explain the relationship between productivity and cost

Relationship between productivity and the cost of production Essay Example for Free

explain the relationship between productivity and cost

This topic is very deep, full of strong reasoning but I am presenting a basic picture : In short run, scale of production is fixed. When scale is fixed, returns are. a consumption index defined over varieties of product ., % i. + i% i i. (4) Products differ in terms of both their fixed and variable costs of production. .. ( supply side) relationship between two key variables: the relative productivity cutoffs. Analyze the relationship between productivity and the cost of production. The definition of productivity is what is put out per the number of.

For example, if the combined number of phone calls handled in a week is 1, and the company has 10 employees each working the same shift length, the average productivity per worker is Businesses use average productivity figures to gain a perspective on the performance of its workforce: If low productivity is the result of a systemic issue within the company and for reasons that affect all workers, measuring average productivity as opposed to per-worker productivity is the better plan.

explain the relationship between productivity and cost

Marginal Marginal productivity is how much output the company gains with one extra unit of input or in this case, by having one extra worker performing the task. In some cases, adding an extra worker does not always improve productivity.

explain the relationship between productivity and cost

If there is not enough work to go around or there isn't enough working space for everyone, productivity may decrease. Thus, firms often want to know what happens to productivity when just one incremental worker is added to the staffing roll.

explain the relationship between productivity and cost

Eugene Diulio, author of the book, "Schaum's Outline of Theory and Problems in of Macroeconomics," explains that marginal productivity decreases if the amount of capital is fixed, or, unable to grow with the rise in workers. Charting marginal productivity helps firms assess at which point productivity is negative: Relationship The firm's marginal and average productivity use the same figures but the outcome is expressed differently.

Hypothetically, a law firm chooses to hire a filing clerk because their paperwork is growing out of control. He files 15 documents an hour.

explain the relationship between productivity and cost

Since he cannot solve the paperwork problem alone, the firm hires another worker: The total from both workers per hour is now 45 documents. Production and Costs To produce a good or a service a firm needs economic resources or factors of production.


What a firm produces is called output. A firm has to pay for the inputs it needs. Therefore, inputs, on the one hand, generate costs and, on the other hand, generate output. We first study the relationship between inputs and the output; that is "production function". Then we look at the relationship between the output and costs; that is cost function. Studying the relationship between costs and inputs without regard to the output produced from the inputs is not useful.

That is why we study the relationship between costs and output.

Relationship Between Marginal & Average Productivity | vifleem.info

Factors of Production The primary factors of production are land and labor. Capital is another important factor of production. In economics we distinguish between physical capital and financial capital. Non-physical assets such as copy rights and patent rights are functionally similar to physical capital.

Financial assets representing physical capital stocks or used to acquire physical capital are financial capital.

Relationship Between Marginal & Average Productivity

In addition to land, labor and capital businesses often use intermediate goods raw materials and supplies in the production process. In market economies the function of entrepreneurs is also very important. The function of an entrepreneur is to acquire and combine all the needed factors of production to produce a good. An entrepreneur takes chances risks in the hope of making profits. Cost of production is simply the sum of the costs of all inputs used in production.

It is rather based on the degree of the variability of inputs. In the short run at least one of the factors of production remains unchanged fixed.