3/04/2005

Production and Output

We have been learning in class about reaching a constrained optimization for profit through hiring employees until their marginal resource cost equals their marginal revenue product. Companies hire employees that, due to the nature of their jobs, do not increase the productivity of the company, such as janitors or grounds maintenance. To use a specific example- a manufacturing company hires an accountant in order to do work created by new tax legislation or accounting regulations which were previously not met by the company. He or she will not increase the output of the company, but serves a supporting function. Does this mean that production is more than just output?

3 comments:

Anonymous said...

Your example janitor employee might be replaced by an outside cleaning service. The janitorial work then shows up as an expense to the company hiring Servicemaster (as an example company). Are the janitors working for a cleaning service productive workers in that context? Their work is directly related to the cleaning company's business so it would seem they are.

What you see depends on where you stand.

Dr. Tufte said...

-1 on Scott's post for no link.

Production is absolutely more than just output. Alternatively, output is a lot broader than most people typically take it to be.

In the case of the janitor, if they do work which helps other people do their work, then they are part of the production process. They are just producing an intermediate product.

With respect to the accountant, it is more correct to say that the new regulation has reduced other output, since that accountant must be tasked to produce something the company wasn't producing before.

Nick said...

Why can't you say that since the janitor cleans up the mess so that more of a product can be manufactured? I think that the janitor is part of the output.