1. Difference Between Production and
Productivity
Production refers to the total quantity of
goods and services produced using various
resources. It measures the absolute level of
output.
Example: A bakery produces 500 loaves of
bread per day.
Productivity measures how efficiently inputs
(like labor and capital) are converted into
output. It shows the effectiveness of
resource use.
Formula: Productivity = Output ÷ Input
Example: If 10 bakers produce 500 loaves,
then each baker’s productivity is 50 loaves
per worker.
Key Difference:
Production is about the total amount
produced.
Productivity focuses on efficiency (output
per input).
2.
The Three Stages of Production
Stage 1: Increasing Returns
Total Product (TP) rises quickly.
Marginal Product (MP) is increasing.
Average Product (AP) is also rising.
Why? Adding more inputs (e.g., workers)
improves efficiency and resource utilization.
Example: A factory with only a few workers
sees an increase in output as more workers
are hired.
Stage 2: Diminishing Returns
TP is still rising but at a slower rate.
MP starts to decline.
AP reaches its peak and then starts
decreasing.
Why? Resources (like machines) become
overused, reducing efficiency.
Example: Adding too many workers to a
small workspace leads to crowding and
inefficiency.
Stage 3: Negative Returns
TP starts to fall.
MP becomes negative.
AP keeps decreasing.
Why? Overcrowding or resource overuse
leads to inefficiency and output loss.
Example: Too many workers lead to
confusion, mistakes, and lower production.
3. Using Total Product, Average
Product, and Marginal Product
Total Product (TP) shows the overall output
level as input increases.
Average Product (AP) tells how much each
input unit (e.g., worker) contributes to
production.
Marginal Product (MP) measures the
additional output gained from one more
input unit.
Key Relationship:
When MP > AP: AP is rising.
When MP < AP: AP starts to decline.
The Diminishing Returns Point is where MP
begins to decrease, marking the transition
to less efficient production.