Question

A 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 five workers, who produced an average of 80 carts per hour. Workers receive $10 per hour, and machine cost was $40 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 four carts per hour.

a. Compute labor productivity under each system. Use carts per worker per hour as the measure of labor productivity.
b. Compute the multifactor productivity under each system. Use carts per dollar cost (labor plus equipment) as the measure.
c. Comment on the changes in productivity according to the two measures, and on which one you believe is the more pertinent for this situation.

Answer 1

(a) 16; 21 carts per worker per hour

(b) 0.89; 0.93 carts per dollar cost

(c) 31.25%; 4.49%

Step-by-step explanation:

(a) Labor productivity under each system:

Total productivity (Before) = Total output ÷ Total input

= 80 ÷ 5

= 16 carts per worker per hour

Total productivity (After) = Total output ÷ Total input (dollar)

= 84 ÷ 4

= 21 carts per worker per hour

(b) Multifactor productivity under each system:

Multifactor productivity (Before) = Total output ÷ Total input

= 80 ÷ (5 × $10 + $40)

= 80 ÷ $90

= 0.89 carts per dollar cost

Multifactor productivity (After) = Total output ÷ Total input

= 84 ÷ (4 × $10 + $50)

= 84 ÷ $90

= 0.93 carts per dollar cost

(c) Changes in productivity according to the two measures:

`Labor\ productivity=(21-16)/(16)*100`

= 31.25%

`Multifactor\ productivity=(0.93-0.89)/(0.89)*100`

= 4.49%