True Value Jeans currently produces 60 pairs of jeans in an 8-hour day. The costs of production include:
Raw material .... $10.00/pair
Labor ....... 3 workers, $20/hour
Energy ...... $1/hour of machine time
Machines ..... 3 machines, $10/hour
a. Calculate the labor productivity for True Value, i.e., how many jeans can be produced per hour of labor?
b. Calculate the multifactor productivity for True Value, i.e., how many pairs of jeans can be produced per dollar spent?

Answer:

a)       The labour productivity will be

= Number of jeans produced per hour of labour

= ( 60 pairs) / ( 3 workers x 8 hours of work /worker)

= 60/24 = 2.5

b)      Total machine hours = 3 machines x 8 hours/machine= 24 machine hours

Cost of machine = $ 10/hour x 24 machine hours = $240

Cost of energy = $1/ hour x 24 machine hours = $24

Cost of labour = $20/hour x 8 hours x 3 workers = $480

Cost of Raw material = $10 / pair x 60 pairs = $600

Number of pairs of jeans produced = 60 pairs

Multifactor productivity

= No of pairs of jeans produced / (cost of machine + cost of energy + cost of labour + cost of raw material)

= 60 /( $240 + $24 +$480 +$600) = 60/$1344 = 0.0446