Question

Question 7: Global Enterprises has adopted a comprehensive quality assurance program to improve its productivity. The company has provided the following data: Output Labor Hours Utilities Capital Labor Cost Last Year This Year 11,000 units 11,200 units 12,000 11,500 $8,000 $7,000 $70,000 $80,000 $9/hour $11/hour (a) Has the company improved its productivity? Why? (b) Predict Global's multi-factor productivity for the next year indicating suitable assumptions. (3 marks for (a), and 2 marks for (b))

Answer 1

a) Multifactor productivity = Output/Input = Output/(labor cost in $)+(Utilities in $)+(Capital in $)

MFP(Last Year) = 11000/(12000*9)+8000+70000 = 0.05914 units/$

MFP(This Year) = 11200/(11500*11)+7000+80000 = 0.05246 units/$

The company's productivity has decreased this year due to increase in labor costs and capital compared to the increase in output.

b) Assuming similar increase and decrease in the output and the inputs, below is how MDP of next year looks like.

Output = 11400 units

Labor hours = 11000 units

Utilities = 6000 $

Capital = 90000 $

Labor Cost = 13 $/hour

MFP = 11400/(11000*13)+6000+90000 = 0.0477 units/$