4 A company that makes shopping carts for supermarkets and o

4. A company that makes shopping carts for supermarkets and other stores recently purchased some new equipment that reduces the labour content of the jobs needed to produce the shopping carts. Prior to buying the new equipment, the company used four workers, who produced an average of 80 carts per hour. Labour cost was $10 per hour and machine cost was $40 per hour. With the new equipment, it was possible to transfer one of the workers to another department. Machine cost increased by $10 per hour while output increased by four carts per hour. LO3 9 a. Calculate labour productivity before and after the new equipment. Use carts per b. Calculate the multifactor productivity before and after the new equipment. Use carts c. Comment on the changes in productivity according to the two measures. Which one worker per hour as the measure of labour productivity. per dollar cost (labour plus machine) as the measure. do you believe is more pertinent for this situation?

Solution

Labor productivity before purchase of new equipment:
Number of labor works= 4

carts per hour= 80

average production per one worker= 80/4= 20 carts

after purchase of new equipment:

avaerage production per one worker= 80/3= 26.67 (round it as 27 units)

b. The cost of production, before purcahse the equipment:

Labor cost per hour =$10

Machine cost per hour= $40

total working hours are= 8 hours

total cost per 8 hours= 8*4*10+8*40= $320+$320= $640

(total labor* number of working hours* cost per hour+machine hours*cost per hour)

total cost after new equipment purchase=

Labor cost= 8*3*$10= $240

Machine cost= 8*$50= $400

total cost after new equipment purchase= $240+$400= $640

C. The two methods carries same cost levels, hence there is no differenciation between these two methods as per total cost. The firm can chose any of the method based on its coviniance. Hence, I can say that, these two methods carry same output, at the same total cost.