A manufacturing company would like to measure total factor productivity and labo
ID: 404092 • Letter: A
Question
A manufacturing company would like to measure total factor productivity and labor productivity. Given the following data for the last 3 years, find the total factor and labor ratios for each year. How would you interpret the results?
Category Year 1 Year 2 Year 3
(Figures are in thousands of dollars)
Sales 110 129 124
Materials 62 73 71
Labor 28 33 28
Other Inputs 8 12 10
Explanation / Answer
Year 1
Total factor ratio = 98/110 = 0.89
total labor ratio = 28/110 = 0254
Year 2
Total factor ratio = 118/129 = 0.914
total labor ratio = 33/129 = 0.255
Year 3
Total factor ratio = 109/124 = 0.879
total labor ratio = 28/110 = 0.225
THis shows that these ration increases first then decreases. Profit is maximum in year 2
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