Useful definitions related to productivity
There are some terms that are frequently used when we are talking about productivity or methods of performance measurement. These terms are the following:
There are some terms that are frequently used when we are talking about productivity or methods of performance measurement. These terms are the following:
- Productivity;
- Total factor productivity;
- Production frontier;
- Technical efficiency;
- Feasible production set.
The definition of productivity
We can define productivity of a firm as the ratio of the output that it produces to the input that it uses.
When the product process involves a single input and a single output, productivity can be found easily. However, when there is more than one input, which is often the case, then a method for aggregating these inputs into a single index of inputs must be used to obtain a ratio measure of productivity.
Total factor productivity
When we are talking about productivity, generally we are referring to total factor productivity, which is a productivity measure that involves all factors of production. Other measures of productivity, such as labor productivity, fuel productivity and land productivity, are often called partial measures of productivity. These partial productivity measures can provide a misleading indication of overall productivity when considered isolated.
Production frontier
Production frontier may be used to define the relationship between the input and the output. The production frontier represents the maximum output attainable from each input level.
Technical efficiency
When firms operate in the production frontier they are technically efficient.
Feasible production set
It is the set of all input-output combinations that are feasible. This set consists of all points below the production frontier. The points along the production frontier define the efficient subset of this feasible production set.
We can define productivity of a firm as the ratio of the output that it produces to the input that it uses.
Total factor productivity
When we are talking about productivity, generally we are referring to total factor productivity, which is a productivity measure that involves all factors of production. Other measures of productivity, such as labor productivity, fuel productivity and land productivity, are often called partial measures of productivity. These partial productivity measures can provide a misleading indication of overall productivity when considered isolated.
Production frontier
Production frontier may be used to define the relationship between the input and the output. The production frontier represents the maximum output attainable from each input level.
Technical efficiency
When firms operate in the production frontier they are technically efficient.
Feasible production set
It is the set of all input-output combinations that are feasible. This set consists of all points below the production frontier. The points along the production frontier define the efficient subset of this feasible production set.
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