Productive Efficiency: Definition & Measurement

Instructor: Brianna Whiting
In this lesson we will look at productive efficiency. We will define the term, and look at how it is often measured. The lesson will then be concluded with a summary and a quiz.

A First Look at Production Efficiency

Meet Ben! Ben is the owner of Ben's Better Bottle Company. As part of his daily tasks, Ben takes a walk through his factory monitoring the production level of his machines and his workers. He makes sure the workers are staying on task, and that the machines are operating like they should. He then strolls up to his office where he looks at that production level on paper. This is a task that looks at the use of resources and the output level of the bottles his company is making. You see, Ben wants to make sure that his company is reaching production efficiency.

Production Efficiency Defined

So what is production efficiency? Well, production efficiency occurs when a company reaches a level in which they can't produce any more products without affecting the production of another good. In other words, during a state of production efficiency, Ben would not be able to make more orange bottles without affecting the production of purple bottles. Also, production efficiency looks at the utilization of resources. This means, that a company wants to make as much product as possible, but without wasting resources. So, from our example above, Ben would need to make as many bottles possible using the least amount of resources in order to avoid wasting any.

Measurement of Production Efficiency

To really understand how production efficiency is measured, it is important to remember that efficiency is often defined as the ability to create or produce something in a manner that results in the least amount of waste. So, in order to measure production efficiency, we need to look at how well a company is producing its products in order to maximize its outputs while using the least amount of resources. The following lists contains important factors when measuring production efficiency:

Unit costs- This is simply the cost per unit. Therefore, when a company can produce one unit at a cheaper cost, the company would be said to be increasing their production efficiency. For example, when Ben started his company, it use to cost $.50 to make a bottle. Now, he can make a bottle for $.35. This means that Ben's company has become more efficient.

Productivity- This is often used to look at the labor aspect of a company. For example, how productive are the employees and how many employees are needed to make the most products. In the case of Ben's Better Bottle Company, Ben knows that he needs 30 employees in order to operate the machines efficiently and produce the maximum amount of bottles. Other ways to measure productivity include the output of the machines, and the number of hours worked.

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