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 4 workers, who produced an average of 82 carts per hour. Workers receive $11 per hour, and machine coast was $52 per hour. With the new equipment, it was possible to transfer one of the workers to another department, and equipment cost increased by $16 per hour while output increased by four carts per hour.

a) Compute the multifactor productivity (MFP) (labor plus equipment) under the Prior to buying the new equipment. The MFP (carts/$) = Blank 1 (round to 4 decimal places).

b) Compute the % growth in productivity between the Prior to and after buying the new equipment. The growth in productivity = Blank 2 % (round to 2 decimal places)

Answer 1

Solution:-

a) Computation of multi factor productivity(MFP)

Total cost of production per hour before

                              = Labor cost + Machine cost = $11×4+$52 =$96

Number of carts produced per hour = 82 carts

Multi factor productivity =

       = Number of carts produced per hour /Total cost of production per hour     before

    =82carts/$96

MFP =0.8542 carts/$

Hence the multi factor productivity before= 0.8542 carts/$

b) Computation of % growth in productivity

Number of carts per worker per hour before = 82/4= 20.5

Number of carts per worker per hour after = (82+4)/3=28.6666

i)Labor productivity increased= (28.6666-20.50)/20.5 = 39.84%

ii)MFP productivity increase =( MPF productivity after -MFP productivity before)/ MFP productivity before

MFP productivity after =

= Number of carts produced per hour /Total cost of production per hour     after

=(82+4)/($11*3+68)

=86/101=0.8515 carts/$

Hence the MFP change =( 0.8515-0.8542)/0.8542= -0.32%

Hence the % growth in,

i) Labor productivity = 39.84%

ii) MFP = -0.32%

Note:- since question is not clear about which productivity , i have calculated both for you .

Please feel free to ask if you have any query in the comment section