Efficiency

• Efficiency


  1. Production is maximized based on a given set of factors of production

  2. Factors of production: capital, enterprise, land, labor

  3. Efficiency is when all factors of production are maximized for a given set of capital, land, labor, and enterprise
• Labor productivity

  Efficiency of labor as a factor of production
• Capital productivity


  Efficiency of capital as a factor of production
• Labor productivity

  Total output divided by total employees
• Capital productivity

  Revenue divided by non-current assets or fixed assets
• Increasing efficiency

  Leads to reducing average cost per unit
• Reducing average cost per unit

  Can lead to reducing selling price, increasing demand, higher sales, higher revenue
• Reducing average cost per unit

  Can lead to higher profit margin per unit
• Efficiency gains


  Can be used to improve product quality, increase wages of labor, increase labor productivity
• Possible uses of efficiency gains

  • Improve product quality
  • Increase wages of labor
  • Other operational improvements
• Solutions to increasing efficiency

  Education and training for workers to increase skills, reduce defects, reduce waste
• Ways to increase productivity

  1. Increasing education and training to make workers more skilled

  2. Adopting different management styles

  3. Increasing investment in machines, technology, and automation
• Increasing education and training for workers


  Leads to less defects, less waste, and increased labor productivity
• Providing labor with training and education


  May lead to increased motivation and labor productivity
• Adopting different management styles

  Can lead to higher labor productivity
• Increasing investment in machines, technology, and automation

  Supports labor and helps increase labor productivity, possibly increasing capital productivity
• Increasing output to achieve economies of scale

  Can lead to efficiency, but there must be demand for the higher output to avoid waste and inefficiency
• Higher labor productivity may result in workers asking for higher wages
• Training and education may face resistance, which can be linked to costs
• Capital investment costs need to be evaluated against the gains to determine if they are offset
• Resistance from stakeholders, particularly shareholders, may occur when implementing new technology or automation
• Increased output to achieve economies of scale must align with demand to avoid inefficiency and waste