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 five workers, who produced an average of 80 carts per hour. Workers receive $10 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 $10 per hour while output increased by four carts per hour.

The productivity increased from 0.89 carts pwe worker per hour to 0.93 arts per worker per hour.

Explanation:

5 worked make 80 carts per hour

Worker receive $10 dollar per hour = $50 dollars wages epxense

Machine cost $40 dollar per hour

A worked is crow-out from factory and the equipment cost increased by $10

The total cost still is $90 dollars but the output now is 84 carts

Labor Productivity (before purchase of new equipment)

80 carts

(5 wkrs.∗$ 10 per hr.) + $ 40

= 0.89 carts per worker per hour

Labor Productivity (after purchase of new equipment)

84 carts

(4 wkrs.∗$ 10 per hr.) + $ 50

= 0.93 carts per worker per hour

Question missing:

Compute labor productivity under each system (before and after the purchase of new equipment). Use carts per worker per hour as the measure of labor productivity.