Arequipa Sweaters Company produces alpaca sweaters that use two inputs, materials and labor. During the past quarter, 2,000 sweaters were produced, requiring 8,000 pounds of material and 4,000 hours of labor. An engineering efficiency study commissioned by the lo¬

cal university revealed that Arequipa can produce the same output of 2,000 sweaters using either of the following two combinations of inputs:

The cost of materials is $5 per pound; the cost of labor is $10 per hour.
Required:
1. Compute the output-input ratio for each input of Combination A. Does this represent a productivity improvement over the current use of inputs? What is the total dollar value of the improvement? Classify this as a technical or input trade-off efficiency improvement.
2. Calculate output-input ratios for each input of Combination B. Does this represent a productivity improvement over the current use of inputs? Now compare these ratios to those of Combination A. What has happened?
3. Compute the cost of producing 2,000 units of output using Combination B. Compare this cost to the cost using Combination A. Does moving from Combination A to Com¬
bination B represent a productivity improvement? Explain.

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Materials Labor Combination A Combination B 7,000 3,500 7,500 3,000