Question

“Larry’s logs” is planning to change the supplier. For complete analysis he needs to compute the Multifactor Productivity (MFP) for each supplier. He expects to produce 240 units using old supplier, and 260 using the new supplier. He pays $10 per hour, and will use 300 labor hours with current supplier and 308 hours with the new supplier. Other costs will be consistent across both suppliers (materials are $10 per log), using a total of 100 logs; capital costs will be $350 and energy $150).

What is the total cost for current and new supplier?

What is the multifactor productivity for the current and new supplier?

What is percent change in multifactor productivity?

Answer 1

a)

The following diiffernt cost are worked as follow for current supplier,

Now, the total cost is,

Similarly, the following diiffernt cost are worked as follow for new supplier,

Now, the total cost is,

b)

The multi factor productivity is obtained by dividing the total production by the total cost as shown below,

For current supplier,

For new suppliers,

c)

The change in percentage multifactor productivity is obtained a sfollow,