Question

Lakefront Manufacturing makes 2,000 tires per day with the following resources:

Labor: 200 hours per day, $15 per hour
Raw material: 10,000 pounds per day, $2 per pound
Energy: $7,000 per day Capital: $10,000 per day
What is the percent change in multi-factor productivity if the raw material can be reduced to $1.5 per pound?
(Please calculate to three decimal places if necessary and select the best answer)
a. 14%
b. 0.7%
c. 12%
d. 5%
e. 7%

Answer 1

The percentage change in multi-factor productivity when the raw material cost is reduced can be calculated by comparing the current and new multi-factor productivity values. By following the provided steps, the percentage change is found to be 7%

Step-by-step explanation:

The percentage change in multi-factor productivity can be calculated by comparing the current value of the multi-factor productivity with the new value after the change in raw material cost. Here's how to calculate it:

1. Calculate the current multi-factor productivity by dividing the total output (2,000 tires) by the sum of the resources used (200 hours of labor, 10,000 pounds of raw material, $7,000 of energy, and $10,000 of capital).
2. Calculate the new multi-factor productivity by dividing the total output (2,000 tires) by the sum of the resources used (200 hours of labor, 10,000 pounds of raw material at $1.5 per pound, $7,000 of energy, and $10,000 of capital).
3. Find the percentage change by subtracting the new multi-factor productivity from the current multi-factor productivity, dividing the result by the current multi-factor productivity, and multiplying by 100.

By applying these steps, the percentage change in multi-factor productivity would be 7%.