We re going to start our consideration of productivity, profit, competition, monopoly, entrepreneurs, forms of business organizations, stock market,

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2 We re going to start our consideration of productivity, profit, competition, monopoly, entrepreneurs, forms of business organizations, stock market, labor unions, income, human capital, with a look back to a concept we learned about a few weeks ago.what is it? (Scarcity!) This time though, we re going to look at scarcity from the perspective of the firm or business. 2

3 Also, remember the production possibility curve? We said that all the points on the line make the best or the most productive use of resources. Below the line we re not doing well. Above the line that s impossible.or is it? What if there s something we can do to improve our productivity? 3

4 Well, there is something we can do, but first we have to answer the question: What s productivity? We re going to spend some time exploring what you, and other people think productivity is.then we ll zero in on a definition of productivity to use in our study of business, labor and market structure. Here s one view of productivity. What s being measured? Is it meaningful (helpful)? 4

5 Here s another view. Who is right in this cartoon? Why? Now, before we move on, I d like you to try to write down your own definition of what productivity is. Along the way through the next 10 or so slides, I ll probably stop once or twice to let you refine your definition. Think of it as a work in progress it doesn t have to be perfect. 5

6 Here are some more views of productivity.or at least some of the things that people believe will lead to greater productivity. It s an eye chart, but don t worry. We re going to look at each of the boxes.as we look, try to think about how the images relate to whatever your definition of productivity is. 6

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16 Pretty much everything we ve looked at so far focuses on employee productivity or to put it in terms we ve been using when we discuss factor markets, we re talking about the productivity of labor. Business managers ask themselves, How can I get more out of my workers? How would you answer that question? The slides suggest a variety of strategies to make people happier, to keep them focused on what ever they re doing, and and now we re going to see a classic definition of productivity, to make them more effective at doing whatever they re doing. 16

17 Here are a couple of typical answers. The first is basically work harder (or better work more). The second is work smarter. Which approach is more productive? If it isn t obvious, don t worry. We re going to do an exercise that will (I hope) make it clearer. 17

18 Calculate the overall loan processing productivity per hour for the bank.. Labor productivity is simply the ratio of loans to labor hours: output (loans) input (labor hrs.) = 3 officers 5 loans/day 3 officers 8 hrs./day = loans/labor hr. 18

19 After doing this analysis, the bank decides to invest in some training, some comfortable chairs, and to provide a free lunch, the average number of loans processed per officer increases to 8 per day. What is the new hourly productivity rate?. Labor productivity is simply the ratio of loans to labor hours: output (loans) input (labor hrs.) = 3 officers 5 loans/day 3 officers 8 hrs./day = loans/labor hr. 19

20 Which of the two solutions did the bank choose? How else could they have increased their output? Their productivity? (N.B. Productivity and output are NOT the same) 20

21 So far we ve really only explored the left side of this slide. Investments firms make in their personnel take many forms, some of which are shown here. Many have been shown to improve employee morale and perhaps more important to the firm s owners employee productivity. What other kinds of human capital investments can you think of? Homework ask your parents what kind of human capital investments their firms offer them. Come to class tomorrow prepared to share and discuss them. Now let s consider the other side of the slide.capital goods investments 21

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23 Simply, capital investments are made to acquire products (usually, but sometimes intangibles like software) that firms in factor markets used to produce finished goods that consumers purchase in product markets. Let s work with a simple example. A pizza shop. Let s say you and your friends decide to open a pizza shop. There are no businesses available for sale, so what will you need to invest in to begin. Work with a partner to come up with a list. 23

24 Does your list include these items? What else does it include? What else will you need? Also, what s the difference between what s in this picture and the other items on your list that actually go into making or serving (to the end customer) the pizza and paninni? Distinguishing between capital goods equipment used to produce finished products in this case, pizza and paninni sandwiches and the consumables used to produce or serve those products (flour, salt, yeast, cheese, tomatoes, napkins, boxes, etc.) 24