A fish facility produces 50,000 frozen fish packs each month utilizing labor and

Question

A fish facility produces 50,000 frozen fish packs each month utilizing labor and equipment. The equipment will remain usable for two years with a total cost of OR 4,000 over two years. The annual labor cost is OR 6,000. a) What are the inputs and output and their values. b) Calculate the multifactor productivity over a 2 year period. c) The management has the option of buying new equipment, with a working life of two years and a total cost of OR 7,000. It would reduce labor costs to OR 4,000 per year. Should management purchase the new equipment? Justify your answer. A fish facility produces 50,000 frozen fish packs each month utilizing labor and equipment. The equipment will remain usable for two years with a total cost of OR 4,000 over two years. The annual labor cost is OR 6,000. a) What are the inputs and output and their values. b) Calculate the multifactor productivity over a 2 year period. c) The management has the option of buying new equipment, with a working life of two years and a total cost of OR 7,000. It would reduce labor costs to OR 4,000 per year. Should management purchase the new equipment? Justify your answer. A fish facility produces 50,000 frozen fish packs each month utilizing labor and equipment. The equipment will remain usable for two years with a total cost of OR 4,000 over two years. The annual labor cost is OR 6,000. a) What are the inputs and output and their values. b) Calculate the multifactor productivity over a 2 year period. c) The management has the option of buying new equipment, with a working life of two years and a total cost of OR 7,000. It would reduce labor costs to OR 4,000 per year. Should management purchase the new equipment? Justify your answer.

Explanation / Answer

a)

Inputs:

Equipment cost = 4000

Labor cost = 6,000 per year (or) 12000 for 2 years

Output:

Frozen fish packs = 50,000 per month or 1200000 fish packs per 2 years

b)

Multifactor productivity = Output/Input

Input = Equipment cost + Labor cost = 4000 + 12000 = 16000

Output = 1200000

Multifactor productivity =1200000 / 16000 = 75 fish packs per 1OR

c)

Input = Equipment cost + Labor cost = 7000 + 8000 = 15000

Output = 1200000

Multifactor productivity =1200000 / 15000 = 80 fish packs per 1OR

Management should purchase the new equipment because with the new equipment we can produce 80 fish packs per 1OR whereas with old equipment we can only produce 75 fish packs per 1OR

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