A company that makes shopping carts for supermarkets and other stores recently purchased some new equipment that reduces the labor content of the jobs needed to produce the shopping carts. Prior to buying the new equipment, the company used 5 workers, who together produced an average of 100 carts per hour. Workers receive $20 per hour, and machine cost was $40 per hour. With the new equipment, it was possible to transfer one of the workers to another department, and equipment cost increased by $11 per hour while output increased by 5 carts per hour. Required:
a. Compute the multifactor productivity(MFP) (labor plus equipment) under the Prior to buying the new equipment. (Round to 4 decimal places)
b. Compute the % growth in productivity between the Prior and after buying the new equipment. (Round to 2 decimal places)

a. The multifactor productivity(MFP)Prior to buying the new equipment=0.71 carts

b. The % growth in productivity between the Prior and after buying the new equipment=12.81%

Explanation:

a. In order to calculate the multifactor productivity(MFP) (labor plus equipment) under the Prior to buying the new equipment we would have to make the following calculation:

multifactor productivity(MFP)Prior to buying the new equipment=Carts produced / [(Number of workers x Worker wage) + Equipment cost)

According to given data we have the following:

Carts produced=100 per hour

(Number of workers= 5

Worker wage=$20

Equipment cost=$40

Therefore, multifactor productivity(MFP)Prior to buying the new equipment=100 / [(5 x $20) + $40

multifactor productivity(MFP)Prior to buying the new equipment=0.71 carts

b. In order to calculate the % growth in productivity between the Prior and after buying the new equipment we would have to make the following calculation:

% growth in productivity between the Prior and after buying the new equipment=(New productivity - Old productivity) / Old productivity] x 100

multifactor productivity(MFP after buying the new equipment=105 / [(4 x $20) + $51

multifactor productivity(MFP after buying the new equipment=0.801

Therefore, % growth in productivity between the Prior and after buying the new equipment=0.801 - 0.71) / 0.71] x 100

% growth in productivity between the Prior and after buying the new equipment=12.81%

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