In this report I will be talking about productivity. Productivity is an economic measure of output per unit of input. Inputs include labour and capital, while output is typically measured in revenues and other GDP components such as business inventories. Productivity measures may be examined collectively (across the whole economy) or viewed industry by industry to examine trends in labour growth, wage levels and technological improvement.
Productivity gains are vital to the economy because they allow us to accomplish more with less. Capital and labour are both scarce resources, so maximizing their impact is always a core concern of modern business. Productivity enhancements come from technology advances, such as computers and the internet, supply chain and logistics improvements, and increased skill levels within the workforce. Productivity is measured and tracked by many economists as a clue for predicting future levels of GDP growth.
Theory of the Firm
To understand how firms make decisions, we must analyse the relationship that exists between profit, revenues, and costs – a relationship sometimes referred to as the Theory of the Firm. The Theory of the Firm assumes that producers are all profit maximizers. Adam Smith’s “invisible hand” of self-interest leads them to increase their revenues and decrease their costs in order to increase their profits. The theory of the firm is always being re-analyzed and adapted to suit changing economies and markets. Early economic analysis focused on broad industries, but as the nineteenth century progressed, more economists began to look at the firm level to answer basic questions about why companies produce what they do, and what motivates their choices when allocating capital and labour. Modern takes on the theory of the firm take such facts as low equity ownership by many decision-makers into account; some feel that CEOs