QUE STION 4 A Company that makes shopping carts for supermarkets and other store

Question

QUE STION 4 A Company that makes shopping carts for supermarkets and other stores recently purchased some new equipment that reduces the labor content ofthe jobs needed to produce the shopping carts. Prior to buying the new equipment, the company used 6 workers, who produced an average of 85 carts per hour. Workers receive $13 per hour, and machine coast was S45 per hour. With the new equipment, it was possible to transfer one of the workers to another department, and equipment cost increased by $19 per hour while output increased by four carts per hour a) Compute the multifactor productivity (MFP) (labor plus equipment) under the After buying the new equipment. The MFP (carts/S)- (round to 4 decimal places) b Compute the %growth in productivity between the Prior to and after buying the new equipment. The growth in productivity- % (round to 2 decimal places)

Explanation / Answer

It is given in the case that:

a) Multifactor productivity can be calculted by dividing the output by total cost

Before buying the equipment:

Worker cost $13* 6 = $78

Machine cost $45

Total cost = $78 + $45 = $123

MFP = Total unit produced/ Total cost = 85/123 = 0.6910 cart/$

After buying the equipment:

Worker cost $13* 5 = $65

Machine cost $64

Total cost = $65 + $64 = $129

MFP = Total unit produced/ Total cost = 89/129 = 0.6899 cart/$

b) Since the cost is incresed by $ 6 after buying the equiment and the number of unit produced is increased only by 4 unit hence the total productivity after the equipment is decreased:

there for the growht in productivity is negative = (.6899 - .6910)/ .6910 = -0.15% increase or 0.15% decrease

Case Outputs(Cart per hour) Worker Labour Productivity Before 85 6 14.1667 After 89 5 17.8

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