2.6 - Production

• Productivity is the measure of efficiency in the use of factors of production in the production process
• Productivity s measured in output per unit of input
• Productivity: Total Output / Total Input
• Economies of scale - Cost advantage that a firm can gain by increasing the scale of production leading to a fall in average costs
• Examples of economies of scale:

  • Technical economies: able to purchase specialist equipment
  • Economy of increased dimensions: Doubling the dimensions of a shipping container will increase costs by 4x since it takes 4x the area
  • Purchasing or bulk-buying economies: Buying in bulk leads to a lower average cost
• Why is productivity important:

  • Increases firms economy of scale
  • Greater Profits
  • Newer + Better Equipment