Question

A property title search firm is contemplating using online software to increase its search productivity. Currently an average of 40 minutes is needed to do a title search. The researcher cost is $2 per minute. Clients are charged a fee of $400. Company C's software would reduce the average search time by 15 minutes, at a cost of $3.5 per search. Company D's software would reduce the average search time by 10 minutes, at a cost of $3.6 per search. Compute the productivity in terms of revenue per dollar of input?

Answer 1

Option 1) $5

Option 2) $4.57

Option 3) $3.7

Step-by-step explanation:

First, since there are 3 options available to the firm, the productivity per dollar input will be calculated for the three options.

1) The first option is to make use of the current software for the title search and the productivity level is calculated as follows

Productivity per dollar input = Fees charge clients/Total cost to the firm

Clients fee= $400

The total cost to firm = Average time x cost to the researcher

=40 minutes x $2 = $80

Therefore, Productivity = $400/$80 = $5

2) The company can use Company C's Software

Productivity per dollar input = Fees charge clients/Total cost to the firm

Fee charged clients= $400

Total cost to firm = (40 minutes - 15 minutes) 25 minutes x $3.5 cost to the researcher

= $400/$87.5 = $4.57

3) The company can decide to use Company D's software

Productivity per dollar input = Fees charge clients/Total cost to the firm

Fee charged clients= $400

Total cost to firm = (40 minutes - 10 minutes) 30 minutes x $3.6 cost to the researcher

= $400/ $108 = $3.7

It can be concluded that using their current software will give the highest productivity in terms of revenue per dollar of input of $5.