1.8 Lillian Fok is president of Lakefront Manufacturing, producer of bicycle tires. Fok makes 1,000 tires per day with the following resources: Labor: 400 hours per day$12.50 per hour Raw material: 20,000 pounds per day @ $1 per pound Energy: $5,000 per day Capital costs: $10,000 per day a) What is the labor productivity per labor-hour for these tires at b) What is the multifactor productivity for these tires at c) What is the percent change in multifactor productivity if Fok Lakefront Manufacturing? Lakefront Manufacturing? can reduce the energy bill by $1,000 per day without cutting production or changing any other inputs?Px

To be calculated:

Labor productivity and multi-factor productivity

Given values:

Labour = 400 hours per day at $12.50 per hour

Raw material = 20,000 pounds per day at $1 per pound

Energy = $5,000 per day

Capital costs = $10,000 per day

Solution:

(A) Labor productivity is calculated as;

Labor productivity = Total output / Total labor hours

Labor productivity = 1000 / 400 = 2.5

Labor productivity = 2.5 tires per labor hour

(B) Multi-factor productivity is calculated as;

Multi-factor productivity = Total output / Total input in dollars

Total input in dollars = (Labor cost + Raw material cost + Energy cost + Capital cost)

Multi-factor productivity = Total output / (Labor cost + Raw material cost + Energy cost + Capital cost)

Multi-factor productivity = 1000 / [(400 x 12.50) + (20000 x 1) + (5000) + (10000)]

Multi-factor productivity = 1000 / [(5000) + (20000) + (5000) + (10000)]

Multi-factor productivity = 1000 / 40000

Multi-factor productivity = 0.025

Multi-factor productivity = Total output / (Labor cost + Raw material cost + Energy cost + Capital cost)

Multi-factor productivity = 1000 / [(400 x 12.50) + (20000 x 1) + (4000) + (10000)]

Multi-factor productivity = 1000 / [(5000) + (20000) + (4000) + (10000)]

Multi-factor productivity = 1000 / 39000

Multi-factor productivity = 0.0256

Percentage change = [(New productivity – Old productivity) / Old productivity] x 100

Percentage change = [(0.0256 – 0.025) / 0.025] x 100

Percentage change = (0.0006 / 0.025) x 100

Percentage change in multi-factor productivity = 2.4%