Productivity
Investment, economic growth, and standard of living
Productivity
• Inputs: – Resources used to produce a something
• Money, time, energy, manpower, natural resources
• Outputs– What is produced by using inputs
• Goods, services
• Productivity is measured by dividing output by the number of inputs to produce the outpot
• More productivity =– More output (products) with same inputs (resources)– Same output with less inputs
What increases productivity?
• INVESTMENT!!!!– Capital Goods
• Equipment and machines that help your business produce more efficiently
– Human capital• Education and training that make your employees
produce more efficiently
• Investments in capital goods and human capital cause economic growth
• More output = economic growth
Effects?
• When a business increases productivity, it makes more profit and grows
• When a country increases productivity, its people enjoy a higher standard of living
Rational Decision-Making
• Marginal Cost: ADDITIONAL cost of adding more inputs (resources)
• Cost of hiring one more worker• Cost of buying one more machine
• Marginal Benefit: ADDITIONAL benefit of adding more inputs
• Extra profit the extra worker brings your business• Extra profit the machine brings your business
• Rational Decision Making: When marginal benefits exceed marginal costs