Productivity and Costs

Productivity and Costs

1) There is a link between productivity and costs resulting in higher costs for lower productivity. To understand this inverse relationship, it is necessary to understand that productivity relates to how effective resources–including human resources, equipment and financial capital–are used. If human resources, for example, are not working at high levels of efficiency, it takes longer for a job to get done, or that more labor must be employed to accomplish the job. That means that more must be paid in salary or overtime than if the workers were able to be more productive.

The same is true for equipment. If equipment is operating at a low level of productivity, it is not producing the maximum number of products that it could, resulting in higher costs per unit. Or, old and inefficient equipment might require more power than newer machines, resulting in higher utility and maintenance costs. Thus, low productivity results in higher costs at this level, as well.

Pricing a product can be based on a number of different factors, including the image that the company wants to create for a particular product or service. Some items are sold at discount prices to attract budget-conscious consumers while other items are sold at premium prices to maximize profitability and attract a different type of consumer. These are marketing decisions that are based on how the company has segmented the market and the goals that the company hopes to achieve in the marketplace.

At the same time, the company must be aware of the supply and demand in the marketplace and price its product according to those parameters, as well. For example, if a company prices its product too high, fewer consumers will purchase the good and the total revenue might be less than the maximum possible with a lower price and more consumers. On the other hand, if the product is priced too low, the company may not be able to meet the demand for the product and again lo…

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