Productivity and efficiency
Starter



How many men to change a tyre?
In a country with only limited capital equipment, I watched three men, equipped with
two crowbars, trying to remove an old tyre from a bus or lorry wheel. In the 20
minutes that I watched, they made very limited progress. Given the obvious weight
and resistance involved, I would have done even worse. To complete the whole
process of removing the old tyre and fitting a new one must have taken hours. My
guess is that about three tyre changes a day would be their maximum.
Specialist tyre depots, in countries with more capital equipment, have pneumatic
machines onto which a wheel is placed. The single operator presses switches to
control a largely automated process. He can change most sizes of tyre in a few
minutes. His speed is obviously relatively high because of the equipment he uses. The
amount and technology of physical capital per worker clearly has a significant
influence on output.
Q - Identify
two other situations in which extra equipment helps
some workers to have higher output levels than others.
Efficiency

Involves using scarce resources in the most
economically achievable way. Costs can be
minimised and best possible use can be made of
both capital equipment and labour.
Productivity


Productivity – measures efficiency in the use of
resources. Measured as output per unit of capital
over time
Labour productivity – output per worker per hour
Productivity
Task

Events pg 48
Capacity utilisation


Investment and technological changes will normally
increase the capacity of the business and the economy
Capacity utilisation measures how much of the maximum
possible output is actually produced, calculated by
comparing the actual production output with the potential
production capacity.
Current output x 100
full potential output .
Excess Capacity

Excess Capacity arises where output is less than
potential capacity - i.e. where capacity utilisation is
less than 100%
If Capacity
Utilization is not
100%
Excess Capacity
Calculations

If maximum output was 1750 units per day however
the factory was producing 452 units per day, work
out the capacity utilisation rate?
Calculations
452
1750*
100%
Capacity utilisation = 26%
Capacity utilisation

Sometimes demand is insufficient to justify working at full
capacity – But this will mean


Fixed costs are shared across lower levels of output
Average costs will increase
Outsourcing


When demand grows, business seek to stretch
output without adjusting their capacity –
through outsourcing
Outsourcing – buying components, services or
finished products from independent suppliers,
rather than producing them in-house
Capital intensity


Investment means spending on any form of capital which
is intended to contribute to future output. Links with
growth of output and productivity are clear
Capital intensive – production uses large amounts of
capital equipment and relatively little labour.
Productivity will be high
Human capital



Human Capital – refers to the knowledge and skills
embodied in people.
Some occupations remain labour intensive because
of the nature of the work
Labour intensive – production uses large amounts of
labour and relatively little capital. Many services
are labour intensive e.g. hairdressing
Exam style questions

Pg 55