Question

Company that makes shopping carts for supermarkets and other stores recently purchased some new equipment that reduces the labor content of the jobs needed to produce the shopping carts. Prior to buying the new equipment, the company used 6 workers, who together produced an average of 90 carts per hour. Workers receive $10 per hour, and machine cost was $50 per hour. With the new equipment, it was possible to transfer one of the workers to another department, and equipment cost increased by $10 per hour, while output increased by 6 carts per hour.
A. Compute the multifactor productivity(MFP) (labor plus equipment) under the Prior to buying the new equipment. (Round to 4 decimal places)
B. Compute the % growth in productivity between the Prior and after buying the new equipment. (Round to 2 decimal places)
C. Comment on the changes in productivity according to two measures,and which you believe in the more pertinent for this situation?

Answer 1

Answer:

A. Compute the multifactor productivity(MFP) (labor plus equipment) under the Prior to buying the new equipment.

multi-factor productivity = 90 carts / ($60 + $50) = 0.8182 carts/$

B. Compute the % growth in productivity between the Prior and after buying the new equipment.

new multi-factor productivity = 96 carts / ($50 + $60) = 0.8727 carts/$

% growth = (0.8727 - 0.8182) / 0.8182 = 6.66% increase

C. Comment on the changes in productivity according to two measures,and which you believe in the more pertinent for this situation?

the multi-factor productivity increased by 6.66% because even though the total cost of the factors of production remained the same, total output increased by 6 units