21) Link\'s Lumber creates pressure-treated utility poles from pine logs bought
ID: 385508 • Letter: 2
Question
21) Link's Lumber creates pressure-treated utility poles from pine logs bought from several surrounding pine plantations. At the Link's Lumber operation, a batch of 100 pine logs yields 85 utility poles with 5 labor-hours required to process the entire batch. Link's Lumber is owned by Artemis Link, whose brother Devious Link is plan- ning to marry Betty Davis, owner of Northlands Pine Plantation. Artemis expects that his future sister-in-law will sell him pine logs for the same price he is paying to purchase them from other growers right now. The difference in Northlands Pine Plantation logs, however, is that they are considerably higher-quality wood than the logs he purchases from his current suppliers. If Betty agrees to sell him Northlands Pine Plantation pine logs, each batch of 100 logs can be expected to yield 100 util- ity poles, although it will take an additional 4 labor-hours per batch to process the higher-quality wood. a. What is the current labor productivity at Link's Lumber? b. What will happen to labor productivity at Link's Lumber if indeed Artemis Link is able to purchase Northlands Pine Plantation lumber from Betty? c. Suppose that Link's Lumber currently buys batches of 100 pine logs for $40, but Betty will want $60 for a batch of 100 Northlands Pine Plantation logs. Assuming labor at S30 an hour, what are the appropriate multifactor productivity measures for production from the current logs and production from Northlands Pine Plan-tation logs? 2 5 3 0Explanation / Answer
Output = 85 utility poles
Time required = 5 labour hours
Therefore, Labour productivity = Output / Time required = 17 poles per labour hour
Output = 100 utility poles
Time required = 5 + 4 = 9 hours
Therefore , revised labour productivity
= Output / Time required
= 100 / 9
= 11.11
Purchase cost of 1 batch of pine logs = $40
Current labour cost = $30 / hour x 5 hours = $150
Total cost = purchase cost + labour cost = $40 + $150 = $190
Current output =85 utility poles
Multifactor productivity
= Current output / Total cost
= 85 poles/ $190
= 0.447 poles per $ input
Scenario from Northern Pine Plantation logs :
Purchase cost of 1 batch of pin logs = $60
Current labour cost = $30 / hour x 9 hours = $270
Total cost = Purchase cost + Labour cost = $60 + $270 = $330
Output = 100 utility poles
Multifactor productivity
= Output/ Total cost
= 100 / $330
= 0.303 poles per $ input
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