Firms & Production
Microeconomic Decision Makers
These two terms are easily confused, and exams test the difference directly.
Production is the total output of goods and services a firm or economy makes.
Productivity is output per unit of a factor of in a given time, most often output per worker (or per worker-hour). It measures efficiency, not just total quantity.
A firm can raise production simply by using more inputs (hiring more workers, running more machines). Raising productivity means getting more output from each input, which lowers average costs.
Influences on production and productivity include:
- the quantity and quality of factors available (more or better land, labour, capital);
- education and training, which raise workers' skills;
- technology and capital equipment, which let workers produce more per hour;
- worker motivation, since better-motivated workers produce more;
- specialisation (division of labour), which raises output per worker.
Exam tip
Name a definite cause of higher productivity
Asked for causes of a rise in labour productivity, give a definite cause: better education, training or skills, better healthcare, better capital equipment or newer technology, more experience, specialisation, or higher pay and better working conditions. One scheme gives nothing for workers simply being "more motivated", as too vague, while the specimen mark scheme credits a rise in wages that motivates workers: say what motivates them. When the question says explain, add the link to output per worker, for example education raises skills, or new technology gives each worker better equipment.