Charles Lackey opeates a bakery in Idaho Falls Idaho Because

Charles Lackey opeates a bakery in Idaho Falls, Idaho. Because of its excellent location, demand has increased by 25% in the last year. On far too many occasions, customers have not been able to purchase the bred of their choice. Because of the size of the store, no new ovens can be added. at a staffmeeting, one employee suggested ways to load the ovens differently so that more loaves of bread can be baked at one time. this new process will require that the ovens be loaded by hand, requiring additional man power. this is the only production change that will be made in order to meet the increased demand. the bakery currently makes 1800 loaves per month. Employees are paid $8 dollars and hour. In addition to the labor cost, Charles also has a constant utility cost per month of $650 and per loaf ingredient cost of $0.50

Current Multifactor productivity for 640 works hours per month =

After increasing the number of house worked per month, the multifactor productivity=

Solution

Current Output:=1800 loaves per month

Current work hours=640 per month

Cost of input = 650+ 0.5 X 1800 +640 X 8= $6670

Multifactor productivity in this case is 1800/6670 = =0.27 Loaf per Dollar spent

Output after increasing work hours: 1.25 X 1800 = 2250 Loaves per month

Increased work hours will be proportional to increased output: 1.25 X 640= 800

Cost of Input= 650+0.5 X 2250 +800 X 8= 8175

Now the multifactor productivity is =2250/8175= 0.28 Loaf per dollar spent