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Productivity Calculation
A company that makes shopping carts for supermarkets and other stores recently purchased some new equipment that reduces labor content of the jobs needed to produce the shopping carts. Prior to buying the new equipment, the company used five workers, who produced an average of 85 carts per hour. Workers receive $10 per hour, and equipment cost was $40 per hour. With the new equipment, it was possible to transfer one of the workers to another department, and equipment cost increases by $10 per hour while output increased by three carts per hour.
1. Compute labor productivity under each system (before and after the purchase of new equipment). Use carts per hour of a worker as the measure for labor productivity.
2. Compute multi-factor productivity under each system. Use carts per dollar (labor plus equipment) as the measure.
3. Comment on productivity changes according to labor and multi-factor productivity and which productivity measure do you believe is more pertinent for this situation?
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