1. Productivity and efficiency

2. Starter How many men to change a tyre?
In a country with only limited capital equipment, I watched three men, equipped with two crowbars, trying to remove an old tyre from a bus or lorry wheel. In the 20 minutes that I watched, they made very limited progress. Given the obvious weight and resistance involved, I would have done even worse. To complete the whole process of removing the old tyre and fitting a new one must have taken hours. My guess is that about three tyre changes a day would be their maximum.
Specialist tyre depots, in countries with more capital equipment, have pneumatic machines onto which a wheel is placed. The single operator presses switches to control a largely automated process. He can change most sizes of tyre in a few minutes. His speed is obviously relatively high because of the equipment he uses. The amount and technology of physical capital per worker clearly has a significant influence on output.
Q - Identify two other situations in which extra equipment helps some workers to have higher output levels than others.

3. Efficiency
Involves using scarce resources in the most economically achievable way. Costs can be minimised and best possible use can be made of both capital equipment and labour.

4. Productivity
Productivity – measures efficiency in the use of resources. Measured as output per unit of capital over time
Labour productivity – output per worker per hour

5. Productivity

6. Task
Events pg 48

7. Capacity utilisation
Investment and technological changes will normally increase the capacity of the business and the economy
Capacity utilisation measures how much of the maximum possible output is actually produced, calculated by comparing the actual production output with the potential production capacity.
Current output x 100
full potential output .

8. If Capacity Utilization is not 100%
Excess Capacity
Excess Capacity arises where output is less than potential capacity - i.e. where capacity utilisation is less than 100%
If Capacity Utilization is not 100%
Excess Capacity

9. Calculations
If maximum output was 1750 units per day however the factory was producing 452 units per day, work out the capacity utilisation rate?

10. Calculations
452
1750* %
Capacity utilisation = 26%

11. Capacity utilisation
Sometimes demand is insufficient to justify working at full capacity – But this will mean
Fixed costs are shared across lower levels of output
Average costs will increase

12. Outsourcing
When demand grows, business seek to stretch output without adjusting their capacity – through outsourcing
Outsourcing – buying components, services or finished products from independent suppliers, rather than producing them in-house

13. Capital intensity
Investment means spending on any form of capital which is intended to contribute to future output. Links with growth of output and productivity are clear
Capital intensive – production uses large amounts of capital equipment and relatively little labour. Productivity will be high

14. Human capital
Human Capital – refers to the knowledge and skills embodied in people.
Some occupations remain labour intensive because of the nature of the work
Labour intensive – production uses large amounts of labour and relatively little capital. Many services are labour intensive e.g. hairdressing

15. Exam style questions
Pg 55