The Dulac Box plant produces wooden packaging boxes to be used in the local seafood industry. Current operations allow the company to make 500 boxes per day, in two 8-hour shifts (250 boxes per shift). The company has introduced some moderate changes in equipment, and conducted appropriate job training, so that production levels have risen to 300 boxes per shift. Labor costs average $10 per hour for each of the 5 full-time workers on each shift. Capital costs were previously $3000 per day, and rose to $3200 per day with the equipment modifications. Energy costs were unchanged by the modifications, at $400 per day.

Required:

What is the firm's multifactor productivity before and after the changes?

The correct answer is 0.119 boxes/dollar and 0.136 boxes/dollar.

Explanation:

According to the scenario, the given data are as follows:

Boxes before change in equipment = 500 boxes per day

Boxes after change in equipment = 600 boxes per day

Shifts per day = 2

Working hour per shift = 8 hour / shift

Worker/s per shift = 5 workers / shift

So, number of workers = 10 workers

Labor cost = $10 / hour

Previous Capital cost = $3,000

After Capital cost = $3,200

Energy cost = $400 / day

So, we can calculate Firm's multifactor productivity before and after the changes by using following formula:

Firm's multifactor productivity before changes = Boxes before change / (Labor cost * number of workers * Working hour per shift) + Previous Capital cost + Energy cost

= 500 boxes / ($10 x 10 x 8 + $3000 + $400)

= 500 / 4200

= 0.119 boxes/dollar

And Firm's multifactor productivity after changes = Boxes after change / (Labor cost * number of workers * Working hour per shift) + After Capital cost + Energy cost

= 600 boxes / ($10 x 10 x 8 + $3200 + $400)

= 600 / 4400

= 0.136 boxes/dollar

Hence, the firm's multifactor productivity before and after the changes is 0.119 boxes/dollar and 0.136 boxes/dollar.