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Productivity: Getting More Output from Each Input

Production is the total amount made. Productivity is output per unit of input, for example boxes per worker per hour. Labour productivity = output ÷ workers (or worker-hours). It rises with training, better machines and technology, motivation, better methods and specialisation. Higher productivity lowers cost per unit, can raise wages and profits, and helps a country grow. Businesses also watch capacity utilisation (actual ÷ maximum output × 100) and choose between labour-intensive and capital-intensive methods.

🎬 Step-by-step story

  1. Productivity = output per unit of input: 2 workers, 10 boxes, 5 per worker.
  2. Labour productivity = output ÷ workers (or hours). Compare two firms.
  3. Training, better machines, motivation and new methods raise productivity.
  4. Capacity utilisation = actual output ÷ maximum output × 100.
  5. Labour-intensive uses many people; capital-intensive uses many machines.
  6. Your turn: change workers and technology and watch productivity.

Tip: drag the 3D scene to turn it. Use two fingers to zoom.

🤔 Common doubts, cleared

If a firm hires more workers, does productivity go up?

Not always. Production goes up, but if each new worker adds less, output per worker can fall. Productivity rises only when each worker makes more.

Is productivity the same as efficiency?

They are close. Productivity measures output per input. Efficiency is wider: using resources with the least waste, including using full capacity.

Why does productivity lower cost per unit?

The wage stays the same but the worker makes more units, so each unit carries a smaller share of the wage.

Is capital-intensive always better?

No. It suits large, standard output. For small, custom or service work, labour-intensive can be cheaper and more flexible.

Can capacity utilisation be above 100%?

Not over a long time. Maximum capacity is the most a firm can make; it may stretch briefly with overtime, but that is not sustainable.

What is productivity?

Production is the total amount of goods or services made. Productivity is how much is made for each unit of input.

A factory can raise production just by hiring more people. Productivity rises only if each person (or each machine) makes more.

Why it matters: higher productivity means a lower cost per unit, so firms can cut prices or earn more profit, pay higher wages, and compete with other countries. For a whole country, higher productivity is the main source of long-run economic growth and higher living standards.

Measuring productivity

Labour productivity = total output ÷ number of workers (or ÷ number of worker-hours).

Capital productivity = output ÷ units of capital (for example, units per machine).

For a country, a common measure is output per hour worked (real GDP ÷ total hours worked).

Measuring is easy for goods (cars per worker) but hard for services: a doctor who sees more patients per hour may give worse care. Quality matters as well as quantity.

Factors that raise productivity

Efficiency, capacity and technology

Efficiency means making output with the fewest resources and least waste.

Capacity utilisation = actual output ÷ maximum possible output × 100. A hotel with 80 of 100 rooms full is at 80%. High utilisation spreads fixed costs over more units, so cost per unit falls. Very close to 100% leaves no time for maintenance and staff get tired.

Labour-intensive production uses a high proportion of labour (hand-made goods, hair salons). It is flexible and good where labour is cheap. Capital-intensive production uses a high proportion of machines (car plants, refineries). It has high set-up cost but very high output per worker and consistent quality.

Technology (robots, automation, online systems) raises productivity but costs money to buy, needs training and may cause job losses.

Try it

In the 3D free play, set 4 workers and technology 1, then 8 workers. Does productivity change? Now raise technology. At home: time how many cards you can fold in 2 minutes. Then fold again using a ruler as a tool. Work out cards per minute both times.

Key formulas and definitions

Worked examples

1. 12 workers make 600 shirts a day. Find labour productivity.

600 ÷ 12 = 50 shirts per worker per day.

2. A team works 160 hours in a week and makes 4,000 units. Find output per worker-hour.

4,000 ÷ 160 = 25 units per hour.

3. Productivity rises from 40 to 50 units per worker. Find the % increase.

(50 − 40) ÷ 40 × 100 = 25%.

4. A factory can make 5,000 units a month and makes 3,500. Find capacity utilisation.

3,500 ÷ 5,000 × 100 = 70%.

5. Each worker earns $600 a week and makes 200 units. After training, output is 300 units at the same wage. Find labour cost per unit before and after.

Before: 600 ÷ 200 = $3. After: 600 ÷ 300 = $2. Cost per unit falls by $1.

6. Firm A: 20 workers, 1,000 units. Firm B: 25 workers, 1,100 units. Which has higher production and which higher productivity?

Production: B (1,100 > 1,000). Productivity: A = 50, B = 44 per worker, so A is more productive.

Common mistakes

Practice quiz

1. Labour productivity =
2. Which is most likely to raise productivity?
3. Capacity utilisation of 600 out of 800 is
4. A car plant using many robots is
5. Higher productivity usually leads to

Practice: answer these yourself

Type or choose your answer, then press Check. Use a hint if you are stuck; the full solution appears after you answer.

Frequently asked questions

What is productivity in simple words?

It is how much output you get for each unit of input, such as units made per worker per hour.

What is the formula for labour productivity?

Labour productivity = total output ÷ number of workers (or worker-hours).

How can a business increase productivity?

Train staff, invest in better machines and technology, motivate workers, use specialisation and reduce waste.

Where this is taught

England (GCSE, A level)Year 103.1.4 Production, costs, revenue and profit
England (GCSE, A level)Year 123.4 Improving operational performance
England (GCSE, A level)Year 124.1.4 Production, costs and revenue

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