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 7 workers, who together produced an average of 90 carts per hour. Workers receive $18 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 $11 per hour while output increased by 5 carts per hour.

a. Compute labor productivity under each system. Use carts per worker per hour as the measure of labor productivity. (Round your answers to 3 decimal places.)

Before			carts per worker per hour
After			carts per worker per hour

b. Compute the multifactor productivity under each system. Use carts per dollar cost (labor plus equipment) as the measure. (Round your answers to 3 decimal places.)

Before			carts/dollar cost
After			carts/dollar cost

c. Comment on the changes in productivity according to the two measures. Round your intermediate calculations to 3 decimal places and final answers to 2 decimal places.

Labor productivity	(Click to select)   decreased   increased  by  %
Multifactor productivity	(Click to select)   increased   decreased  by  %

Answer 1

We need to understand the following table:

Particulars	Remark	Before	After
No. of labourers	Given	7	6
Carts per hour	Given	90	90+5=95
Per labourer cost per hour	Given	18	18
Machine cost per hour	Given	40	40+11=55
Total labour cost per hour	No. of labourers x per labour cost per hour	7x18=126	6x18=108
carts per worker per hour	Carts per hour/No. of labourers	90/7=12.86	95/6=15.83
Total dollar cost per hour	Total labour cost per hour+Machine cost per hour	126+40=166	55+108=163
carts/dollar cost	Carts per hour/Total dollar cost per hour	90/166= 0.54	95/108= 0.58
Change in Labour productivity	carts per worker per hour after/carts per worker per hour before -1		15.83/12.86-1 = 0.23 or 23%
Change in multifactor productivity	carts per dollar cost after/carts per dollar cost before-1		0.58/0.54 -1 =0.075 or 7.5%

Part (a)

Particulars	Remark	Before	After
carts per worker per hour	Carts per hour/No. of labourers	90/7=12.86	95/6=15.83

Part (b)

Particulars	Remark	Before	After
carts/dollar cost	Carts per hour/Total dollar cost per hour	90/166= 0.54	95/108= 0.58

Part (c)

Particulars	Remark	Before	After
Change in Labour productivity	carts per worker per hour after/carts per worker per hour before -1		15.83/12.86-1 = 0.23 or 23%
Change in multifactor productivity	carts per dollar cost after/carts per dollar cost before-1		0.58/0.54 -1 =0.075 or 7.5%

Labour productivity increased by 23% and multifactor productivity increased by 7%