PRINCIPLES OF ECONOMICS - PRODUCTIVITY

Productivity
The average measure of efficiency of production is called Productivity. It can be expressed as the
ratio of output to inputs used in the production process, i.e. output per unit of input. Productivity is
an important concepts that governs our daily lives since it not only concerns organizations that try to
maximise their gains through better productivity, but also bothers individuals who seek to
accomplish more work in same or lesser amount of time.
Broadly speaking, Productivity talks about how efficiently resources are transformed into finished
goods and services. It depends upon several factors like how many resources are put into use, how
judiciously resources are used, how various departments synchronize among themselves so as to
minimize delays etc.

Total Productivity
Total Productivity, as the name indicates, refers to the measure of sum total of production by all
resources put into use. Suppose 10 men produce 15 chairs in a day, then total productivity of these
10 men will be 15 chairs. It is always positive.

Marginal Productivity
Marginal Productivity denotes the measure of unitary contribution by each and every worker to total
production. In other words, marginal productivity of all workers adds up to total productivity. It may
be positive, zero or even negative.

Average Productivity
As the name implies, taking the average of marginal productivities of all workers gives average
productivity. Or more directly, average productivity can be calculated by dividing the total
productivity with the no of workers.

Relation between Total, Marginal and Average Productivity

Professor Jason Welker of Zurich International School explains relation between the three types of
productivities through following example:

Students are given a task to perform collectively, i.e., each person in the group has to
necessarily do something
Starting with group of 1 student, every minute, a new student is added to group who, like
others in the group, starts performing some work
This goes on till size of group becomes 8, and total task done at the end of each minute is
recorded
To ease calculations, the task chosen was to produce long paper strips by cutting and joining
shorter strips of paper. Task was measured as the length of paper strip produced every
minute

PRINCIPLES OF ECONOMICS - PRODUCTIVITY

SHUBHAM GUPTA

PRINCIPLES OF ECONOMICS - PRODUCTIVITY

No of
Total
Marginal
Average
Students Production Production Production
(Q)
(T)
(M)
(A)
1
2
2
2
2
5
3
2.5
3
9
4
3
4
12
3
3
5
14
2
2.8
6
15
1
2.5
7
8

13
10

-2
-3

1.85
1.25

Graph
16
14
12
10
8
6
4
2
0
1

-2

-4
Total Production (T)

Marginal Production (M)

Average Production (A)

Relation between Total Production (T) and Marginal Production (M)

If M is increasing, T is increasing at an increasing rate

T is increasing till M is positive
If M is decreasing, T is decreasing

Explanation
As long as each new worker added contributes towards finishing work earlier (till M > 0),
total production keeps increasing
Once addition of new worker starts affecting production negatively, total productivity begins
falling
This observation abides by the fact that too many working hands start creating a hindrance
in production, so production begins to fall

Relation between Marginal Production (M) and Average Production (A)

In the region where M > A, A keeps increasing

A is maximum at the point where M = A
In the region where M drops below A, A starts decreasing

PRINCIPLES OF ECONOMICS - PRODUCTIVITY

SHUBHAM GUPTA

PRINCIPLES OF ECONOMICS - PRODUCTIVITY

Explanation
As long as each new worker contributes more than an existing average worker, the overall
average performance will rise
Once marginal production of new workers falls below the average, the overall average
production starts decreasing
This again explains the old saying that Too many cooks spoil the broth

PRINCIPLES OF ECONOMICS - PRODUCTIVITY

SHUBHAM GUPTA