Understanding Key Concepts in Production and Efficiency

Definitions
Technology: Technical procedures, equipment, and machinery used in the production process and how to combine human and material resources in that process.
Technical Efficiency: A way to produce is technically more efficient than others if it manages to produce a greater quantity of goods and services with the same factors, or the same quantity with fewer factors. It is economically efficient if it can produce the same quantity at a lower cost, or produce more with the same costs.
Cost of Production or service is the monetary value of the factors used to obtain them. Fixed Costs: To begin producing, a local company needs a building and machinery. Regardless of what occurs, companies have to face some fixed costs.Variable Costs: Costs that change as a function of the quantity produced, increasing or decreasing as production levels change.
- Direct Costs: Those that are directly linked to production and can easily be identified with each product. For example, the number of hours spent painting a product.
- Indirect Costs: Those affecting the company as a whole and are common to various products. For example, cleaning staff salaries.
Break-even Point: The volume of sales needed to cover all costs, both fixed and variable. At this turnover, the company neither gains nor loses (zero profit). It is the threshold at which the company starts making profits; below that level, there are losses.
- Productivity: The indicator used by the company to measure efficiency, defined by the ratio between production in one period and the factors used to obtain it. Factors that can increase the productivity of the company are:
1) Improving Human Capital: Knowledge and skills acquired by workers through education, vocational training, and experience. Training, skills, and labor experience increase their capacity to produce goods and services.
2) The Quality of Management of Resources: Physical and human resources should be organized and managed effectively. Good management starts with the selection process of human resources and continues with motivation and communication, improving incentives...