Productivity is the way in which a firm measures the efficiency of their production method.
Every firm has a finite amount of resources which can be used in the production of a good or service. This includes workers, time, and money. Productivity is a measurement of the amount which is produced with given resources.
The higher the firms productivity is, the more units of output are being produced without an increase in resources. A firm with low productivity will be wasting resources and producing inefficiently.
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Key terms:
Productivity of Labour – the efficiency of workers. This is measured by the the total output divided by the number of workers.
Division of Labour – the separation of the production process which allows workers to focus on specific tasks.
Specialisation – when an individual, business, region, or country focuses their production efforts on one specific good or service.