Is the multifactor productivity dropping or rising in the following link?



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Posted on (Answer #1)

In this question, the multifactor productivity is falling each week.  The management of this firm will need to remedy this situation.  To see why this is so, we must first understand what multifactor productivity is and what value we have for it in each successive week.

Multifactor productivity is the ratio of the value of the product to the value of the inputs that were used to make the product.  It is expressed in dollars of output per dollar of input.

In this scenario, we have three inputs.  These are labor, materials, and overhead. We add these together to find the cost of our inputs.  We then find the dollar value of our outputs and divide that by the value of the inputs for the corresponding week.  Mathematically, this would be shown as

Week X = Value of outputs / (Labor costs + Materials costs + Overhead).

Given the numbers provided, we have the following results:

Week 1 = 36792/ (3640 + 301 + 5460) = 3.91

Week 2 = 41454/ (4160 + 315 + 6240) = 3.87

Week 3 = 40068/ (4160 + 308 + 6240) = 3.74

Week 4 = 44352 / (4680 + 336 + 7020) = 3.68

 These numbers show us that the multifactor productivity has dropped steadily over the four weeks in question.

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