Productivity Measurement, Technical and Price Efficiency

In 20x1, Fleming Chemicals used the following input combination to produce 55,000 gallons of an industrial solvent:

Materials	33,000 lbs.
Labor	66,000 hrs.

In 20x2, Fleming again planned to produce 55,000 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	38,500 lbs.	27,500 lbs.
Labor	44,000 hrs.	55,000 hrs.

The following combination is optimal for an output of 55,000 units. However, this optimal input combination is unknown to Fleming.

Materials	22,000 lbs.
Labor	44,000 hrs.

The cost of materials is $60 per pound, and the cost of labor is $15 per hour. These input prices hold for 20x1 and 20x2.

Required:

1. Compute the productivity profiles for each of the items listed below. If required, round the answers to two decimal places.

a. The actual inputs used in 20x1.

20x1
Materials
Labor

b. The inputs for each proposed 20x2 process change.

	Materials	Labor
Change I
Change II

c. The optimal input combination.

	Optimal
Materials
Labor

2. Compute the cost of 20x1's productive inefficiency relative to the optimal input combination. Repeat for 20x2 proposed input changes.

20x1	$
20x2 Change I	$
20x2 Change II	$

Compute the amount of the productivity improvement from 20x1 to 20x2 for each process change. If an amount is zero, enter "0".

Change I	$
Change II	$