Productivity Measurement, Technical and Allocative Efficiency, Partial Measures

Question

Productivity Measurement, Technical and Allocative Efficiency, Partial Measures Carsen Company produces handcrafted pottery that uses two inputs: materials and labor. During the past quarter, 24,000 units were produced, requiring 96,000 pounds of materials and 48,000 hours of labor. An engineering efficiency study commissioned by the local university revealed that Carsen can produce the same 24,000 units of output using either of the following two combinations of inputs:
Materials Labor
Combinations:
F1 72,000 79,200
F2 36,000 33,600
The cost of materials is $8 per pound; the cost of labor is $12 per hour.

Required: 1. Compute the output-input ratio for each input of Combination F1. If required, round your answers to two decimal places.
Materials
Labor

Does this represent a productivity improvement over the current use of inputs?

What is the total dollar value of the improvement? $

Classify this as a technical or an allocative efficiency improvement.

2. Compute the output-input ratio for each input of Combination F2. If required, round your answers to two decimal places.
Materials
Labor

Does this represent a productivity improvement over the current use of inputs?

Now, compare these ratios to those of Combination F1. What has happened?

F2 has_________ productivity for materials and___________ productivity for labor.

3. Compute the cost of producing 24,000 units of output using Combination F1. $

Compare this cost to the cost using Combination F2.
Cost of Combination F1 $
Cost of Combination F2
Difference $

Does moving from Combination F1 to Combination F2 represent a productivity improvement?

Explanation / Answer

Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you. 1 Output - Input Ratio F1 Current Material 24000/72000 33.33% 24000/96000 25% Labor 24000/36000 66.67% 24000/48000 50% Does this represent a productivity improvement over the current use of inputs? Yes What is the total dollar value of the improvement? $ F1 Current $ Improvement Mat (Mat*8) 576000 768000 192000 Lab (Hour*12) 432000 576000 144000 Total 1008000 1344000 336000 Technical Efficiency 2. Output-Input Ratio F2 Current Material 24000/79200 30.30% 24000/96000 25% Labor 24000/33600 71.43% 24000/48000 50% 576000 768000 432000 576000 Does this represent a productivity improvement over the current use of inputs? Yes F2 has LOWER productivity for materials and HIGHER productivity for labor. 3. Compute the cost of producing 24,000 units of output using Combination F1. $ F1 F2 Diff Mat (Mat*8) 576000 633600 57600 Lab (Hour*12) 432000 403200 -28800 Total 1008000 1036800 28800 NO

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