It is important that a business makes effective use of its assets. The investment in production capacity is often significant. Think about how much it costs to set up a factory; the production line with all its machinery and technology. One way to look at how efficiently a business operates is to look at "productivity".
Productivity measures the relationship between inputs into the production process and the resultant outputs. Productivity can be measured in several ways: e.g.
The unit cost measure is particularly important. A falling ratio would indicate that efficiency was improving.
Why is achieving high productivity important?
There are various ways in which a business can try to improve its productivity:
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