Chapter 12, Problem 12.44P

Total factor productivity (continuation of 12-43). Refer to the data for Problem 12-43.

Assume the fabric costs $4.00 per yard In 2017 and $4.10 per yard in 2016.

1. 1. Compute Gable Company’s total factor productivity (TFP) for 2017.

Required

1. 2. Compare TFP for 2017 with a benchmark TFP for 2016 inputs based on 2017 prices and output.
2. 3. What additional information does TFP provide that partial-productivity measures do not?

12-43 Partial-productivity measurement. Gable Company manufactures wallets from fabric. In 2016, Gable made 2,160,000 wallets using 1,600,000 yards of fabric. In 2016, Gable has capacity to make 2,448,000 wallets and incurs a cost of $8,568,000 for this capacity. In 2017, Gable plans to make 2,203,200 wallets, make fabric use more efficient, and reduce capacity.

Suppose that in 2017 Gable makes 2,203,200 wallets, uses 1,440,000 yards of fabric, and reduces capacity to 2,295,000 wallets at a cost of $7,803,000.

1. 1. Calculate the partial-productivity ratios for materials and conversion (capacity costs) for 2017, and compare them to a benchmark for 2016 calculated based on 2017 output.

Required

1. 2. How can Gable Company use the information from the partial-productivity calculations?