Leslie Holt is Director at Tires Inc.. a producer of tires for ATVs (all-terrain

Question

Leslie Holt is Director at Tires Inc.. a producer of tires for ATVs (all-terrain vehicles). Tires Inc. makes 1200 tires per day with the following resources: Labor: 400 hours @$12.50 per hour Raw Material: 20,000 pounds per day @$1.25 per pound Energy: $5000 per day Capital: $10,000 per day What is the labor productivity at Tires Inc.? What is the multifactor productivity at Tires Inc.? If Leslie Holt can change the labor input through automation such that the labor input changes to 375 hours @$15 per hour keeping everything else unchanged, what would you recommend, should she go with automation based on productivity?

Explanation / Answer

a) Labor productvity= Production/Labour Cost=1200/(400*12.5)=0.24    Use in next (400*12.5=5000)

b) Multifactor productivity=Production/all inputs=400/(5000+20000*1.25+5000+10000)=0.008889

c) 375*15=5625, the automation will increase the labor cost from 5000 to 5625 and since other factors do not change it is not advisable togo with automation.

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