Business, Legal & Accounting Glossary
Productivity in economics is a measure of production efficiency. It is expressed as a ratio of resources required for producing an output. Physical productivity is that quantity of output, which is produced by a unit of input per unit time.
Economic productivity is value of output, which is obtained from a unit of input. For instance, a worker produces 4 units of output per hour. Price per unit of output is 10$ then this worker’s productivity is 40$. Technological and market elements play a role in the determination of economic productivity. Market elements include heads like the quantity of output and prices.
Rich nations worldwide display a high productivity level. Poor countries are usually seen to display low productivity levels. On a global scale, productivity differentials are counted as a prime cause for per capita income dispersion among nations.
Put simply this economic theory implies that, a firm pays a productive factor/ agent as per its addition to this firm’s financial earnings. Economists like Clark and Wicksteed developed marginal productivity theory in the latter half of the 19th century. Value of marginal product of an input is its yield less costs involved. Marginal productivity theory postulates that each production input needs to be paid as its VMP (value of the marginal product).
One important function of productivity measurement models is the specification of the production function. Depending upon variables used productivity measurement models can be subdivided into following three broad subgroups.
Davis in 1955 presented a model of productivity index. With time, various versions of that model have been developed, however, its basic framework has remained unaltered. In the PPPR model basic function is as follows:
Profitability = f (Productivity, Price Recovery)
Productivity, in turn, is a variable related to the production function. For PPPV models Profitability = f (Productivity, Prices, Volume) holds.
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This glossary post was last updated: 29th March, 2020 | 0 Views.