Question

Question 3

1. Define “productivity”.
2. Compare single factor productivity measure with total factor productivity measure.
3. What do we mean when we say productivity is a “relative” measure?
4. Various financial data for the past two years follow. Calculate the total factor productivity and the single-factor productivity measures for labor, capital, and raw materials for this company for both years. What do these measures tell you about this company?

		Last Year	This Year
Output:	Sales	$201,005	$202,015
Inputs:	Labor	$30,010	$40,010
	Raw materials	$34,775	$44,785
	Energy	$4,870	$5,890
	Capital	$49,700	$49,700
	Other	$1,870	$3,005

Answer 1

a. Productivity is the measure of production with respect to one or more inputs. Productivity is calculated by dividing the output by one or more inputs. Eg: If an organization produces 120 units of a product by using 60 labour hours, its productivity shall 120 / 60 ie 2 units per labour hour.

b. A single-factor productivity measure is productivity with respect to one input. So, if an organization is able to produce and sell products worth $ 1000 by using $ 500 of material cost, the single factor productivity for material cost shall be 1000/ 500 = 2

Total factor productivity measure of multi-factor productivity measure is productivity with respect to more than one inputs. So, if an organization is able to produce and sell products worth $ 1000 by using $ 500 of material cost and $ 300 of labour cost, the Total factor productivity shall be 1000/ ( 500 + 300 ) = 1000 / 800 = 1.25

c. Productivity is a relative measure. This means that productivity is always calculated with respect to some input or inputs. Therefore, productivity is always relative to one or more inputs. Eg: Productivity has to be calculated per labour hour, per material cost etc.

d.

For last year:

Single-factor productivity for labor = Sales / Labor cost = 201005 / 30010 = 6.70

Single-factor productivity for capital = Sales / Capital cost = 201005 / 49700 = 4.04

Single-factor productivity for Raw materials = Sales / Raw material cost = 201005 / 34775 = 5.78

Total factor productivity= Total Sales / ( Labour cost + Raw Material cost + Energy cost + Capital Cost + Other cost)= 200015 / ( 30010 + 34775 + 4870 + 49700 + 1870) = 201005 / 121225 = 1.66

For this year:

Single-factor productivity for labor = Sales / Labor cost = 202015 / 40010 = 5.05

Single-factor productivity for Capital = Sales / Capital cost = 202015 / 49700 = 4.06

Single-factor productivity for Raw materials = Sales / Raw material cost = 202015 / 44785 = 4.51

Total factor productivity= Sales / ( Labour cost + Raw Material cost + Energy cost + Capital Cost + Other cost)= 202015 / ( 40010 + 44785 + 5890 + 49700 + 3005) = 201005 / 143390 = 1.41

The above production measures show that the Total factor productvity of the company has fallen this year. The company increase its Labor input, raw material input, energy input, and other input, however the Sales did not increase proportionately. The single factor productivity for labour, raw material, energy, and other has also decreased in this year. The possible reason could be that the company was not able to fully utilize its inputs. This resulted in fall of Total productivity measure this year.

The single factor productivity for capital has increased this year, beacuse there was no chanhe in cpaital input.