Productivity Measurement, Technical and Price Efficiency

In 2014, Fleming Chemicals used the following input combination to produce 59,500 gallons of an industrial solvent:

Materials 33,150 lbs. Labor 66,300 hrs.

In 2015, Fleming again planned to produce 59,500 gallons of solvent and was considering two different changes in process, both of which would be able to produce the desired output. The following input combinations are associated with each process change:

Change I Change II

Materials 38,675 lbs. 27,625 lbs.

Labor 44,200 hrs. 55,250 hrs.

The following combination is optimal for an output of 59,500 units. However, this optimal input combination is unknown to Fleming.

Materials 22,100 lbs.

Labor 44,200 hrs.

The cost of materials is $68 per pound, and the cost of labor is $17 per hour. These input prices hold for 2014 and 2015.

Compute the cost of 2014s productive inefficiency relative to the optimal input combination. Repeat for 2015 proposed input changes.

	Cost of Productive Inefficiency
2014	$
2015 Change I	$
2015 Change II	$

Compute the amount of the productivity improvement from 2014 to 2015 for each process change. If an amount is zero, enter "0".

	Potential Improvement for 2015
Change I	$
Change II	$