Ch.

9 Production and Productivity

Name: Hannah Godbehere Period: 3 Date: 9/24/20
Charles “Chip” Ductor, the youthful president and CEO of Microductor, Inc., sat in his office reading The
Wall Street Journal newspaper. An article on the growth of the U.S. economy caught his attention.
According to the article, the U.S. gross domestic product (GDP) grew nearly 12 trillion dollars between
1960 and 2005. Today the U.S. GDP is approximately 20 trillion dollars. The GDP is the market value of
goods and services produced in a nation in a year.

. It has 4 major components: - consumer spending, investment,

government spending and net exports. Chip had taken economics in college, so he realized that just
because GDP had grown 28 times since 1960, we don’t have 28 times more goods and services than we
did in 1960. The statistics in the article had not been adjusted for inflation. For this reason, to be accurate
we must look at real GDP which is adjusted for inflation. GDP, Chip remembered, has some other
shortcomings. It doesn’t include transactions involving used items or the activities of the
underground economy.
.
Chip then read about the real per capita GDP which divides the GDP by the population to calculate what
each person is earning on average. It had grown from $13,840 in 1960 to $37,504 in 2005. Today it is
about $52,182. This demonstrates the growth of productivity in our nation. For this to continue Chip
makes sure that all of his employees focus on technology, quality, reducing waste.
Chip put down the newspaper to look at a report on the productivity of his factory. He thought about some
of his fixed costs: loans and rent. These costs will be the same regardless of the number of chips
produced. The variable costs would vary with the number of chips the plant produced. Such costs include
wages and raw materials .
The big question for Chip is given these costs, how many chips should Microductor produce? At some
point, it costs more to produce an additional batch of chips than the one before. This is the point of
diminishing returns. But Chip also needs to know what price his customers will pay and how they many
they will buy. By estimating both costs and revenues at different levels of production, Chip can
recommend the most profitable number of chips to produce. If Microductor’s new Octavium chip is
successful, Chip will build a bigger plant to take advantage of economies of scale .
inflation technology wages and raw materials quality point of diminishing
returns real GDP reducing waste economies of scale loans and rent
market value of goods and services produced in a nation in a year
12 trillion dollars investment, government spending and net exports
transactions involving used items or the activities of the underground economy

1
Understanding the Law of Diminishing Returns
Can you over-practice? Can you study too much? Does there come a point at which the effort no longer
produces results?
Assume that your student company produces the SAFETY-PAC. It’s a combination first-aid and
emergency repair kit that neatly fits into a car’s glove compartment.
1. Your company can produce as many as 100 kits a week. This is your capacity. Why might you
choose not to produce this many?
- You don’t want to overproduce and then just have overstock that isn’t even selling.

2. Study the table below to determine how many kits you should produce.

Unit Price Units Fixed Variable Total Total Net Profit

Produced Costs Costs Costs Sales or Loss
$10 25 $50 $75 $125 $250 $125
$8 35 $50 $100 $150 $280 $120
$7 50 $50 $160 $210 $350 $140
$6 70 $50 $210 $260 $420 $160
$5 90 $50 $250 $300 $450 $180
$4 100 $50 $300 $350 $400 $80

a. Complete the chart by calculating Total Sales and Net Profit or Loss at each unit price.
- Done.
b. At what level of production is your company’s net profit the greatest? Explain.
- The company’s net profit is the greatest at the fourth level of production; it shows it in
the chart.

c. Ordinarily, you would stop production at the level with which you maximized your profits.
Under what circumstances might you continue production beyond that point?
- If there’s a shortage of goods, you might continue production beyond the point of the highest
profit.

d. What improvements could you add to improve productivity? How would these changes impact
the numbers in the table above?
- You could divide labor more efficiently, get rid of repetitive steps, reduce waste, and
ultimately get rid of variable cost.

2
Read the article, “Do It Right the First Time”, on page 73 of the JA Study Guide.
David Garvin, a professor at the Harvard Business School. Identified 8 dimension of quality. In the spaces
below each one, enter your own example. You cannot use one of the examples listed in a particular
dimension. You may, however, list it with another dimension. You may use the same example more than
once.

1. Performance: the quietness of a car’s ride; the resistance of makeup to smudging; the clarity of
the picture, sound, and color of a TV set; energy efficiency in appliances.
- Speaker, LED lights

2. Features: the colors, patterns, and fabrics that are available in furniture, towels, sheets, and
drapes; the different cycles and options available on household appliances.
- Phone, clothes, accessories

3. Reliability: the dependability of a product or service to perform properly over time. How often
does a copier machine or car need repairs?
- TV, blender

4. Conformance: how a product meets desired standards, such as size, consistency of color, and
scheduled delivery.
- Computer game

5. Durability: how long a product or service will last under various conditions. This is important
when purchasing lightbulbs or batteries.
- Truck

6. Serviceability: the ability to get items repaired or serviced. Many firms have toll-free hotlines or
access via the internet.
- Apple care, phone

7. Aesthetics: how a product looks, feels, tastes, and smells.

- Food, clothes

8. Perceived Quality: the reputation of a product. Its name and label. Are Japanese cars still
considered the best?
- Nike, Apple

3
Now answer the questions below based on the 8 dimensions of quality.

1. Think about the last major purchase you or somebody you know made.

a. Identity the product or service purchased.

- A ninja foodie (my mom bought it).
b. How much were they influenced by the 8 dimensions? Explain.

- My mom was really influenced by the 8th dimension (perceived quality), and the durability of
the foodie. She heard how good it works from reviews, ads, and celebrities that said that
Ninja is a reliable and durable brand.
 c. Which dimensions were the most important? Explain.
- Durability I would say would be the most important b/c if you’re going to splurge on
something you want to make sure it’s worth your money.

2. Quality is important to entrepreneurs and consumers. Which of the 8 dimensions outlined are
the most important to you? Explain.
- Out of the 8 dimensions outlined I think aesthetics and durability are most important to me
because I’m someone who enjoys the look of things but I also don’t want to spend my money
on something that isn’t durable.

3. Think about your favorite TV commercial.

a. Identify the commercial.

- Goldfish commercial
b. What dimensions of quality are emphasized in the commercial? Explain.
- The aesthetics of this commercial and features are the most emphasized in this
commercial. Since it’s an enjoyable food commercial it makes u crave the food and
the commercial brings a bit of serotonin to you.

c. Does the commercial increase sales? Explain.

- I think the commercial does increase sales b/c it’s catchy, funny, and makes you want the
goldfish.

4
Factors that Influence Productivity
Term Definition Example
Efficient allocation  Combination of inputs, outputs and Time management skills
of resources distribution of inputs, outputs such that any
change in the economy can make
someone better off, only by making
someone worse off.
Focus on quality Promoting and maintaining high standards Restaurant w/ bad food
at work, looking for ways to improve
products and services, and encouraging
coworkers to do so as well.
Specialization A method of production whereby an entity Linebacker in football
focuses on the production of a limited
scope of goods to gain a greater degree of
efficiency.
Education/training Refers to all organized, College
education and training activities in which
people take part in order to obtain
knowledge and/or learn new skills for a
 current or a future job, etc.
T.Q.M./ Describes a management approach to long- Giving people responsibility so
empowerment term success through customer satisfaction. they can do a better job

Healthcare the organized provision of medical care to Obamacare, Medicaid

individuals or a community.

Mass production the production of large quantities of a Model T

standardized article by an automated
mechanical process.
Infrastructure the basic physical and organizational Highways, streets, schools
structures and facilities

Assembly line a series of workers and machines in a
factory by which a succession of identical
items is progressively assembled.
Economies of scale a proportionate saving in costs gained by
an increased level of production.
Reduce waste the preferred approach
to waste management because waste that
never gets created doesn't
have waste management costs.
Division of labor the assignment of different parts of a
manufacturing process or task to different
people in order to improve efficiency.
Technology the application of scientific knowledge for
practical purposes, especially in industry.
Henry Ford invented this
To produce tap water, water
companies had to invest in a
huge network of water pipes
stretching throughout the
country
Wasting time
Assembly line: each person
has a station
Apple or Samsung making
new phones

Research & work directed toward the innovation, Computer software company
development – R&D introduction, and improvement of products spends more on this than a
and processes. retail sales company would.
Student achievement is the number one goal at PBMHS. In the Criticism column below, list ways we fail
to succeed in this area. In other words, we are not being efficient/productive. In the Suggestion column,
outline how you would fix the problems and thus improve student achievement/productivity. Your
thoughts must be school appropriate and realistic.

Criticism Suggestion
More nutritious meals that will help w/ students’
Lunch- success.
Bad Teachers- - More training
- More administrative review

- Less cheating
Bad Students- - More plagiarism checks

- Guide more
Bad Guidance Counselors- - Actually, slow up for our scheduled
meetings
- Less firing & hiring

- Have open house @ a better time

Parental Involvement- - Gove more incentives for parental
involvement