Productivity Measurement, Technical and Price Efficiency In 20x1, Fleming Chemic

Question

Productivity Measurement, Technical and Price Efficiency

In 20x1, Fleming Chemicals used the following input combination to produce 55,000 gallons of an industrial solvent:

In 20x2, Fleming again planned to produce 55,000 gallons of solvent and was considering two different changes in process, both of which would be able to produce the desired output. The following input combinations are associated with each process change:

The following combination is optimal for an output of 55,000 units. However, this optimal input combination is unknown to Fleming.

The cost of materials is $60 per pound, and the cost of labor is $15 per hour. These input prices hold for 20x1 and 20x2.

Required:

1. Compute the productivity profiles for each of the items listed below. If required, round the answers to two decimal places.

a. The actual inputs used in 20x1.

b. The inputs for each proposed 20x2 process change.

c. The optimal input combination.

2. Compute the cost of 20x1's productive inefficiency relative to the optimal input combination. Repeat for 20x2 proposed input changes.

Compute the amount of the productivity improvement from 20x1 to 20x2 for each process change. If an amount is zero, enter "0".

Materials 33,000 lbs. Labor 66,000 hrs.

Explanation / Answer

2) Cost of 20x1's productive inefficiency relative to the optimal input combination. Repeat for 20x2 proposed input changes.

The amount of the productivity improvement from 20x1 to 20x2 for each process change.

1) a. The actual inputs used in 20x1. 20x1 Input (a) Output (b) Input-output ratio c =b/a Materials 33000 lbs 55000                                            1.67 Labor 66000 hrs 55000                                            0.83 b. The inputs for each proposed 20x2 process change. Change I Input (a) Output (b) Input-output ratio c =b/a Materials 38500 lbs 55000                                            1.43 Labor 44000 hrs 55000                                            1.25 Change II Input (a) Output (b) Input-output ratio c =b/a Materials 27500 lbs 55000                                            2.00 Labor 55000 hrs 55000                                            1.00 c. The optimal input combination. Optimal Input (a) Output (b) Input-output ratio c =b/a Materials 22000 lbs 55000                                            2.50 Labor 44000 hrs 55000                                            1.25

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