Question

QUESTION 4 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 6 workers, who produced an average of 78 carts per hour. Workers receive $10 per hour, and machine coast was S36 per hour. With the new equipment, it was possible to transfer one of the workers to another department, and equipment cost increased by S13 per hour while output increased by four carts per hour. a) Compute the multifactor productivity (MFP) (labor plus equipment) under the After buying the new equipment. The MFP (carts/S) = (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 % (round to 2 decimal places)

Answer 1

Multifactor Productivity measures economic performance in terms of total goods/services produced with respect to the combined inputs required for the production.

Multifactor Productivity = Total Output/Total Input; i.e. Output Per Hour /(Labour Cost Per Hour + Equipment Cost Per Hour)

The table below summarises input and output scenario initially and after equipment purchase.

	Total Workers	Labour (Cost / Hr)	Machin (Cost /Hr)	Output (Carts/Hr)
Initially	6	10	36	78
Finally	5	10	49	82

a) After Equipment Purchase :

Total Labour cost per hour = 5*$10 = $50/Hour

Total Equipment Cost = $49/Hr

Total Output = 82 Carts/Hr

Multifactor Productivity = Output/Total Input = (82 Carts)/(50+49)$/Hr = 82/99 Carts/$

Therefore, final MFP(Carts/$) = 0.8283

b) Before equipment Purchase:

Total Labour cost per hour = 6*$10 = $60/Hour

Total Equipment Cost = $36/Hr

Total Output = 78 Carts/Hr

Multifactor Productivity = Output/Total Input = (78 Carts)/(60+36)$/Hr = 78/96 Carts/$

Therefore MFP(Carts/$) = 0.8125

Growth in Productivity = (Final MFP - Initial MFP)/(Initial MFP)

= (0.8283-0.8125)/0.8125 = 0.02

% Growth in Productivity = 2%