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Ch15HWSolutionsPlus

# Ch15HWSolutionsPlus - CHAPTER 15 PRODUCTIVITY MEASUREMENT...

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CHAPTER 15 PRODUCTIVITY MEASUREMENT AND CONTROL EXERCISES 15–1 1. Combinations B and C are technically efficient. Combination B can produce the same output for less of each input than Combination A. Similarly, Com- bination C can produce the same output for less of each input than Combina- tion D. Comparing B and C shows that trade-offs exist among the inputs, and so it is not possible to say that B is more technically efficient than C (or vice versa). 2. Once the technically efficient input combinations are identified, then the least costly combination should be chosen. Input prices are used to value the trade-offs (B uses more materials but less labor and energy than C): Combination B: (\$8 × 110) + (\$10 × 180) + (\$2 × 540) = \$3,760 Combination C: (\$8 × 92) + (\$10 × 190) + (\$2 × 570) = \$3,776 Combination B is the best choice based on allocative efficiency. 15–2 1. Output-input ratios (Combination C1): Materials: 4,000/14,000 = 0.29 Labor: 4,000/7,000 = 0.57 Yes, there is improvement. Current productivity is: Materials: 4,000/16,000 = 0.25 Labor: 4,000/8,000 = 0.50 Since 0.29 > 0.25 and 0.57 > 0.50, Combination C1 dominates the current in- put combination, and productivity would definitely improve. Cost comparison: Current combination (\$5 × 16,000) + (\$10 × 8,000) \$160,000 Combination C1 (\$5 × 14,000) + (\$10 × 7,000) 140,000 Value of productivity \$ 20,000 This improvement is all attributable to technical efficiency. The same output is produced with proportionately less inputs. (Note that the inputs are in the same ratio 2:1, and that Combination C1 reduces each input in the same pro- portion). 1

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15–2 Concluded 2. Output-input ratios (Combination C2): Materials: 4,000/15,000 = 0.27 Labor: 4,000/6,000 = 0.67 Compared to the current use, productivity is better for both materials and labor (0.27 > 0.25 and 0.67 > 0.50). Compared to Combination C1, however, C2 has lower productivity for materi- als (0.27 < 0.29) and higher productivity for labor (0.67 > 0.57). Trade-offs must be considered.
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