6. Production and Productivity

Before individuals and households can buy the goods and services that they demand, someone needs to supply them first. The process of creating a good or service so that it can be sold in the market is called production. Production involves transforming inputs – typically labor, capital goods, and raw materials – into outputs, or final products offered to customers.

Most production in a modern economy and in Hegemony is carried out by firms, rather than self-employed individuals. Firms are entities that employ more than one worker. They are economic agents that decide how to use their scarce resources to achieve their profit objective. They also interact with other economic agents like individuals (whom they employ and may sell to) and governments.

An example of a firm is a farm. The farm uses many inputs in the production process, including natural resources (land, air, water), seeds, agricultural machinery, and workers’ labor. The owner, or the manager, decides how many people to employ and how to use the inputs in the right proportions to produce the greatest possible quantity of wheat come harvest time. These decisions are complex, so, in Hegemony, firms have been simplified. Once the owner (player) opens the firm, hires employees, and sets their wages, goods and services are produced automatically each round. Productivity is an important concept in the game.

Productivity is defined as the amount of output that is produced from a fixed quantity of inputs. A farm with more efficient technology is more productive if it can produce more wheat from the same plot of land and using the same number of tractors and workers as another firm.

One way to raise the productivity is to introduce more advanced technology. Continuing with the farm example, a new tractor with an efficient, cutting-edge engine will raise productivity if it needs less fuel to do the same job than an older, fuel-guzzling model. Another way to improve productivity can be through education and training. For instance, a farm worker trained in the use of technology can use sensors and computer software to decide when to water the crops to achieve the most successful harvest. A more educated workforce typically boosts productivity because it can work better with output-enhancing technology. This is one of the reasons why many countries invest in education as they attempt to develop economically.