In simple terms, the greater the productivity, the more goods and services can be made from a given amount of resources. Labor Productivity Labor is the resource most commonly used in measuring productivity because it accounts for a large share of the cost of production for making a good or service and the quantity of labor is more easily measured than other inputs. Capital is the resource most responsible for increasing labor productivity. As workers acquire more knowledge, their productivity grows. Because of their increase in productivity, their income grows.
Physical capital is machines, etc.
As a worker uses more physical capital, their productivity increases. Per-Worker Production Function Used to express the relation between the amount of capital per worker and the output per worker in the economy. The PF slopes upward from left to right because an increase in the amount of capital per worker causes the output per worker to increase. At a point, the curve begins to flatten out. At this point there is diminishing returns.